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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



 

FORM 10-Q



 

 
(Mark One)
    
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2011

OR

 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission File Number 001-34986



 

FXCM Inc.

(Exact name of registrant as specified in its charter)

 
Delaware   27-3268672
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

32 Old Slip
New York, NY 10005

(Address of principal executive offices) (Zip Code)

Telephone: (646) 432-2986

(Registrant’s telephone number, including area code)



 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer x   Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s Class A common stock, par value $0.01 per share, outstanding was 16,952,324 as of August 12, 2011. The number of shares of the registrant’s Class B common stock, par value $0.01 per share, outstanding as of August 12, 2011 was 100.

 

 


 
 

TABLE OF CONTENTS

FXCM INC.
QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended June 30, 2011

Table of Contents

 
Item
Number
  Page
PART I — FINANCIAL INFORMATION
        

Item 1.

Financial Statements

    1  
FXCM Inc. Condensed Consolidated Statements of Financial Condition (Unaudited)     1  
FXCM Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)     2  
FXCM Inc. Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)     3  
FXCM Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)     4  
FXCM Inc. Notes to Condensed Consolidated Financial Statements (Unaudited)     5  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    28  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

    48  

Item 4.

Controls and Procedures

    50  
PART II — OTHER INFORMATION
        

Item 1.

Legal Proceedings

    51  

Item 1A.

Risk Factors

    52  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    52  

Item 3.

Defaults Upon Senior Securities

    52  

Item 4.

(Removed and Reserved)

    52  

Item 5.

Other Information

    52  

Item 6.

Exhibits

    53  
SIGNATURES     54  

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Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as such factors may be updated by Quarterly Reports on Form 10-Q subsequently filed with the U.S. Securities and Exchange Commission (the “SEC”), including by “Item 1A. Risk Factors” of this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

FXCM Inc. is a holding company that was incorporated as a Delaware corporation on August 10, 2010 and its sole asset is a controlling equity interest in FXCM Holdings, LLC. Unless the context suggests otherwise, references in this report to “FXCM,” the “Company,” “we,” “us” and “our” refer (1) prior to the December 2010 initial public offering (“IPO”) of the Class A common stock of FXCM Inc. and related transactions, to FXCM Holdings, LLC and its consolidated subsidiaries and (2) after our IPO and related transactions, to FXCM Inc. and its consolidated subsidiaries.

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PART I
  
Item 1 — Financial Statements (Unaudited)
  
FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Condensed Consolidated Statements of Financial Condition (Unaudited)

   
  June 30,
2011
  December 31,
2010
     (In thousands, except share
and per share data)
Assets
                 
Current assets
                 
Cash and cash equivalents   $ 179,539     $ 193,330  
Cash and cash equivalents, held for customers     839,006       641,152  
Due from brokers     6,956       125  
Accounts receivable, net     17,728       18,324  
Deferred tax asset     7,054       7,625  
Tax receivable     1,834       1,643  
Total current assets     1,052,117       862,199  
Deferred tax asset     86,872       90,107  
Office, communication and computer equipment, net     31,459       18,709  
Goodwill     39,400       37,937  
Other intangible assets, net     25,561       26,472  
Other assets     14,488       12,369  
Total assets   $ 1,249,897     $ 1,047,793  
Liabilities and Equity
                 
Current liabilities
                 
Customer account liabilities   $ 839,006     $ 641,152  
Accounts payable and accrued expenses     54,766       37,470  
Due to brokers     2,855       13,314  
Deferred tax liability     1,838       1,844  
Due to related parties pursuant to tax receivable agreement     3,744       3,817  
Deferred revenue           6,000  
Total current liabilities     902,209       703,597  
Deferred tax liability     5,359       5,770  
Due to related parties pursuant to tax receivable agreement     68,620       70,419  
Total liabilities     976,188       779,786  
Commitments and Contingencies
                 
Stockholders’ Equity
                 
Class A common stock, par value $0.01 per share; 3,000,000,000 shares authorized, 16,952,324 and 17,319,000 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively     170       173  
Class B common stock, par value $0.01 per share; 1,000,000 shares authorized, 100 shares issued and outstanding as of June 30, 2011 and December 31, 2010     1       1  
Additional paid-in-capital     103,359       101,848  
Retained earnings     4,193       146  
Accumulated other comprehensive income     639       52  
Total stockholders’ equity     108,362       102,220  
Non-controlling interest     165,347       165,787  
Total stockholders’ equity     273,709       268,007  
Total liabilities and stockholders’ equity   $ 1,249,897     $ 1,047,793  

 
 
See accompanying notes to the condensed consolidated financial statements.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

       
  Three Months Ended   Six Months Ended
     June 30,
2011
  June 30,
2010
  June 30,
2011
  June 30,
2010
     (Amounts in thousands, except per share data)
Revenues
                                   
Retail trading revenue   $ 93,482     $ 86,477     $ 171,217     $ 154,225  
Institutional trading revenue     6,721       7,402       14,100       13,589  
Interest income     933       489       1,874       1,005  
Other income     2,263       2,294       10,860       4,803  
Total revenues     103,399       96,662       198,051       173,622  
Expenses
                                   
Referring broker fees     24,932       21,418       46,533       37,073  
Compensation and benefits     23,121       17,608       45,707       34,499  
Advertising and marketing     7,487       5,979       14,505       11,315  
Communication and technology     8,010       7,260       15,369       12,798  
General and administrative     29,244       9,181       42,159       17,614  
Depreciation and amortization     4,740       1,718       8,834       3,461  
Interest expense     60       25       133       51  
Total expenses     97,594       63,189       173,240       116,811  
Income before income taxes     5,805       33,473       24,811       56,811  
Income tax provision     2,070       2,358       2,619       4,966  
Net income     3,735       31,115       22,192       51,845  
Net income attributable to members of FXCM Holdings, LLC     420       31,115       16,081       51,845  
Net income attributable to FXCM Inc. for the three and six months ended June 30, 2011     3,315             6,111        
Other comprehensive income, net of tax
                                   
Foreign currency translation gain/(loss)     471       (186 )      2,519       (144 ) 
Comprehensive income     4,206       30,929       24,711       51,701  
Comprehensive income attributable to members of FXCM Holdings, LLC     774       30,929       18,012       51,701  
Comprehensive income attributable to FXCM Inc. for the three and six months ended June 30, 2011   $ 3,432     $     $ 6,699     $  

       
  Three Months Ended   Six Months Ended
     June 30,
2011
  June 30,
2010
  June 30,
2011
  June 30,
2010
Weighted average shares of Class A common stock outstanding:
                                   
Basic     17,214             17,266        
Diluted     17,214             17,266        
Net income per share attributable to stockholders of Class A common stock of FXCM Inc.:
                                   
Basic   $ 0.19     $     $ 0.35     $  
Diluted   $ 0.19     $     $ 0.35     $  
Dividends declared per common share   $ 0.06     $     $ 0.12     $  

 
 
See accompanying notes to the condensed consolidated financial statements.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)
  
(In thousands, except share amounts)

                 
  FXCM Inc.
     Non-controlling
Interest
  Retained
Earnings
  Accumulated
Other
Comprehensive
  Additional
Paid-in Capital
    
  
  
Common Stock – Class B
    
  
  
Common Stock – Class A
  Total
Stockholders'
Equity
     Shares   Dollars   Shares   Dollars
Balance as of January 1, 2011   $ 165,787     $ 146     $ 52     $ 101,848       100     $ 1       17,319,000     $ 173     $ 268,007  
Net income     16,081       6,111                                           22,192  
Other comprehensive income, net of tax
                                                                                
Foreign currency translation gain     1,932             587                                     2,519  
Repurchase of class A common stock pursuant to publicly announced program                       (3,355 )                  (366,676 )      (3 )      (3,358 ) 
Employee stock options                       4,866                               4,866  
Dividends on Class A common stock              (2,064 )                                                            (2,064 ) 
Payments for IPO costs     (141 )                                                (141 ) 
Distributions     (18,312 )                                                (18,312 ) 
Balance as of June 30, 2011   $ 165,347     $ 4,193     $ 639     $ 103,359       100     $ 1       16,952,324     $ 170     $ 273,709  

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Condensed Consolidated Statements of Cash Flows (Unaudited)

   
  Six Months Ended
     June 30,
2011
  June 30,
2010
     (Amounts in thousands)
Cash Flows From Operating Activities
                 
Net income   $ 22,192     $ 51,845  
Adjustments to reconcile net income to net cash provided by operating activities
                 
Depreciation and amortization     8,834       3,461  
Stock-based compensation     4,401        
Deferred tax expense     3,069       120  
Deferred revenue     (6,000 )      (3,000 ) 
Loss on disposal of fixed assets     143        
Changes in operating assets and liabilities
                 
Cash and cash equivalents, held for customers     (84,710 )      (71,951 ) 
Due from brokers     (6,831 )      840  
Accounts receivable     788       (2,716 ) 
Tax receivable     287        
Other assets     (930 )      (1,178 ) 
Customer account liabilities     83,830       71,724  
Accounts payable and accrued expenses     14,752       1,110  
Due to brokers     (10,460 )      7,074  
Net cash provided by operating activities     29,365       57,329  
Cash Flows From Investing Activities
                 
Payment for acquisition; net of cash acquired     (4,898 )       
Purchase of intangibles     (525 )       
Purchases of office, communication and computer equipment     (15,670 )      (3,538 ) 
Net cash used in investing activities     (21,093 )      (3,538 ) 
Cash Flows From Financing Activities
                 
Payments for IPO costs     (141 )       
Members’ distributions     (18,312 )      (40,722 ) 
Dividends paid     (2,064 )       
Stock repurchased     (3,358 )       
Net cash used in financing activities     (23,875 )      (40,722 ) 
Effect of foreign currency exchange rate changes on cash and cash equivalents     1,812       83  
Net (decrease)/increase in cash and cash equivalents     (13,791 )      13,152  
Cash and Cash Equivalents
                 
Beginning of Year     193,330       139,858  
End of Period   $ 179,539     $ 153,010  

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Nature of Business and Organization

FXCM Inc. (the “Corporation”), a Delaware corporation, was incorporated on August 10, 2010 as a holding company for the purpose of facilitating an initial public offering (“IPO”) of the Corporation’s common equity. On December 1, 2010, a registration statement filed with the SEC relating to shares of Class A common stock of the Corporation to be offered and sold in an IPO was declared effective. On December 7, 2010, the Corporation completed an IPO of 17,319,000 shares of Class A common stock at a public offering price of $14.00 per share. Prior to the IPO, the Corporation had not engaged in any business or other activities except in connection with its formation and the IPO.

The Corporation was a wholly-owned subsidiary of FXCM Holdings, LLC (“Holdings”) prior to the consummation of the reorganization described below. Subsequent to the reorganization, Holdings is a minority-owned, controlled and consolidated subsidiary of the Corporation.

Collectively, the Corporation and its consolidated subsidiaries are referred to hereinafter as “the Company.”

Holdings

The Company operates through Holdings and its global subsidiaries, which are subject to local regulatory requirements. Holdings is a Delaware limited liability company and wholly owns Forex Capital Markets, LLC (“US”), FXCM Canada, Ltd. (“Canada”), Forex Trading, LLC (“FXT”) and ODL Group Limited (“ODL”). FXT’s wholly owned subsidiaries include FXCM Asia Limited (“HK”), Forex Capital Markets Limited (“UK”), and FXCM Australia, Ltd. (“Australia). On October 1, 2010, the Company acquired ODL, a leading broker of FX, CFDs, spread betting, equities and equity options headquartered in the United Kingdom (the “U.K.”). ODL’s wholly owned subsidiaries include FXCM Securities Limited (“FSL”) (formerly, ODL Securities Limited) and ODL Japan Co. Limited (“ODL JL”). On March 31, 2011, the Company acquired FXCM Japan, Inc., (“FXCMJ”) a Japan-based foreign exchange provider. FXCMJ was sold to the Company by GCI Capital Co., Ltd., who had previously reached an agreement with the Company to use the FXCM Japan trademark prior to the acquisition. FXCMJ is a wholly owned subsidiary of ODL JL. FXCMJ’s wholly owned subsidiary is GCI Technology USA, Inc.

The Company is an online provider of foreign exchange (“FX”) trading and related services to domestic and international retail and institutional customers and offers customers access to global over-the-counter FX markets. In a FX trade, a participant buys one currency and simultaneously sells another, a combination known as a “currency pair”. The Company’s proprietary trading platform presents its FX customers with the price quotations on several currency pairs from various global banks, financial institutions and market makers, or FX market makers. The Company’s primary source of revenue is earned by adding a markup to the price provided by FX market makers and generates its trading revenue based on the volume of transactions. The Company utilizes what is referred to as an agency execution or agency model. Under the agency model, when a customer executes a trade on the price quotation presented by the FX market maker, the Company acts as a credit intermediary, or a riskless principal, simultaneously entering into a trade with the customer and the FX market maker. This agency model has the effect of automatically hedging the Company’s positions and eliminating market risk exposure. The systematic hedge gains and losses are included in retail trading revenue in the condensed consolidated statements of operations and comprehensive income. The Company also offers FX trading services to banks, hedge funds and other institutional customers, also on an agency model basis, through its FXCM Pro division. This service allows customers to obtain optimal prices offered by external banks. The counterparties to these trades are external financial institutions that hold customer account balances and settle the transactions. The Company receives commissions for these services without incurring credit or market risk. Additionally, the Company is engaged in various ancillary FX related services which include use of our platform, technical expertise, trading facilities and software. Through its subsidiary ODL, the Company also is a FX broker of CFDs, spread betting, equities and equity options.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Nature of Business and Organization  – (continued)

Certain agreements and transactions associated with the IPO are set forth below.

Reorganization

Prior to the completion of the IPO, the Limited Liability Company Agreement of Holdings (the “LLC agreement”) was restated among other things, to modify its capital structure by reclassifying the interests held by its existing owners (i.e., the owners of Holdings prior to the IPO) into a single new class of units (“Holding Units”). Holdings’ existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, from and after the first anniversary of the date of the closing of the IPO, (subject to the terms of the exchange agreement as described therein) to exchange their Holding Units for shares of the Corporation’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Following the IPO, each of the existing owners holds one share of Class B common stock. The shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of the Corporation that is equal to the aggregate number of Holdings Unit of Holdings held by such holder, subject to customary adjustments for stock splits, stock dividends and reclassifications.

At the time of the offering, the Corporation purchased newly-issued Holdings Units from Holdings and outstanding Holdings Units from the existing owners of Holdings, including members of its senior management, at a purchase price per unit equal to the $14.00 price per share of Class A common stock in the offering net of underwriting discounts. Since the existing owners continue to have control of over 50% of the voting shares (through their interests in the Corporation) upon completion of the exchange, the exchange of cash by the Corporation for Holdings Units of Holdings was accounted for as a transaction between entities under common control in accordance with the guidance in ASC Subtopic 805-50. Holdings recognized the amount of cash transferred at the date of the exchange and measured the cash received at its carrying amount. The date of the exchange was December 1, 2010 (i.e., the effective date of the initial public offering).

Tax Receivable Agreement

As described above, the Corporation purchased Holdings Units from other members of Holdings at the time of the IPO. In addition, under the terms of the exchange agreement described above, the members of Holdings (other than the Corporation) may, from and after the first anniversary of the date of the closing of the IPO (subject to the terms of the exchange agreement), exchange their Holdings Units for shares of Class A common stock of the Corporation on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Holdings intends to make an election under Section 754 of the Code effective for each taxable year in which such a purchase or exchange of Holdings Units for shares of Class A common stock occurs, which is expected to result in increases to the tax basis of the assets of Holdings at the time of the purchase or subsequent exchange of Holdings Units that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that the Corporation would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates

A summary of the Company’s significant accounting policies and estimates is as follows:

Basis of Presentation

The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal recurring nature. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company consolidates those entities in which it is the primary beneficiary of a variable-interest entity as required by ASC 810, Consolidations, or entities where it has a controlling financial interest.

As indicated above, the Corporation operates and controls all of the businesses and affairs of Holdings and its subsidiaries. Under ASC 810, Holdings meets the definition of a variable interest entity. Further, the Corporation is the primary beneficiary of Holdings as a result of its 100% voting power and control over Holdings and as a result of its obligation to absorb losses and its right to receive benefits of Holdings that could potentially be significant to Holdings. As a result, the Corporation consolidates the financial results of Holdings and records a non-controlling interest for the economic interest in Holdings held by the existing unit holders to the extent that the book value of their interest in Holdings is greater than zero. The Corporation’s and the non-controlling unit holders’ economic interest in Holdings was 22.6% and 77.4%, respectively, as of June 30, 2011. The Corporation’s and the non-controlling unit holders’ economic interest in Holdings was 23.0% and 77.0%, respectively, as of December 31, 2010. Net income attributable to the non-controlling interest on the statements of operations and comprehensive income represents the portion of earnings or loss attributable to the economic interest in Holdings held by the non-controlling unit holders. Non-controlling interest on the statements of financial condition represents the portion of net assets of Holdings attributable to the non-controlling unit-holders based on total units of Holdings owned by such unit holder. All material intercompany accounts and transactions are eliminated in consolidation.

As permitted under Rule 10-01 of SEC Regulation S-X, certain footnotes or other financial information can be condensed or omitted in the interim condensed consolidated financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in FXCM’s Annual Report on Form 10-K for the year ended December 31, 2010.

Certain reclassifications have been made to previously reported amounts to conform to the current presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash at banks and highly liquid instruments with original maturities of less than 90 days at the time of purchase. At times, these balances may exceed federally insured limits. This potentially subjects the Company to concentration risk. The Company has not experienced losses in such accounts.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

Cash and Cash Equivalents, held for customers

Cash and cash equivalents, held for customers represents cash held to fund customer liabilities in connection with foreign currency transactions. The balance arises primarily from cash deposited by customers, customer margin balances, and cash held by FX market makers related to hedging activities. The Company records a corresponding liability in connection with this amount that is included in customer account liabilities in the condensed consolidated statements of financial condition (see Note 5). A portion of the balance is not available for general use due to legal restrictions in accordance with certain jurisdictional regulatory requirements. These legally restricted balances were $671.5 million and $502.9 million as of June 30, 2011 and December 31, 2010, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. These two inputs create the following fair value hierarchy:

Level I: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level II: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level III: Unobservable inputs for assets or liabilities.

As of June 30, 2011 and December 31, 2010, substantially all of the Company’s financial instruments were carried at fair value based on spot exchange rates broadly distributed in active markets, or amounts approximating fair value. Assets, including, due from brokers and others, are carried at cost or contracted amounts, which approximates fair value. Similarly, liabilities, including customer account liabilities, due to brokers and payables to others are carried at fair value or contracted amounts, which approximates fair value.

The Company did not have any Level II and III financial assets or liabilities as of June 30, 2011 and December 31, 2010. The Company did not have any transfers in or out of Level I and II during the six months ended June 30, 2011, and the year ended December 31, 2010. Cash and cash equivalents and cash and cash equivalents, held for customers are deemed to be Level I financial assets.

Due from/to Brokers

Due from/to Brokers represents the amount of the unsettled spot currency trades that the Company has open with its financial institutions. The Company has master netting agreements with its respective counterparties under which its due to/from brokers balances are presented on a net-by-counterparty basis in accordance with U.S. GAAP.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

Office, Communication and Computer Equipment, net

Office, communication and computer equipment, net, consist of purchased technology hardware and software, internally developed software, leasehold improvements, furniture and fixtures and other equipment, computer equipment, licenses and communication equipment. Office, communication and computer equipment, net, are recorded at historical cost, net of accumulated depreciation. Additions and improvements that extend the lives of assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Certain costs of software developed or obtained for internal use are capitalized. Depreciation is computed using the straight-line method. The Company depreciates these assets using the following useful lives:

 
Computer equipment   3 to 5 years
Software   2 to 5 years
Leasehold improvements   Lesser of the estimated economic useful life or the term of the lease
Furniture and fixtures and other equipment   3 to 5 years
Licenses   2 to 4 years
Communication equipment   3 to 5 years

Valuation of Other Long-Lived Assets

The Company also assesses potential impairments of its other long-lived assets, including office, communication and computer equipment, when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset exceeds its fair value and is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results. There was no impairment of other long-lived assets in the six months ended June 30, 2011 and the year ended December 31, 2010.

Business Combination

The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations, and records assets acquired and liabilities assumed at their fair values as of the acquisition date. The Company records any excess purchase price over the value assigned to net tangible and identifiable intangible assets of a business acquired as goodwill. Acquisition related costs are expensed as incurred. Refer to Note 4 for further details.

Goodwill

The Company recorded goodwill from the acquisition of ODL, a leading broker of FX, CFDs, spread betting, equities and equity options headquartered in the U.K. and FXCMJ. Goodwill represents the excess purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. Goodwill is allocated to our reporting units based on the assignment of the fair values of each reporting unit of the acquired company. The Company is required to test goodwill for impairment at the reporting unit level annually, or in interim periods if certain events occur indicating that the carrying value may be impaired. The Company tests for impairment during the fourth quarter of our fiscal year using October 1 carrying values. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill is less than the carrying value. The determination of fair value includes considerations of projected cash flows, relevant trading multiples of comparable companies and the trading price of our common stock and other factors. There was no impairment of goodwill for the six months ended June 30, 2011 and year ended December 31, 2010. Although there is no

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TABLE OF CONTENTS

FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

impairment as of June 30, 2011, events such as economic weakness and unexpected significant declines in operating results of reporting units may result in our having to perform a goodwill impairment test for some or all of our reporting units prior to the required annual assessment. These types of events and the resulting analysis could result in goodwill impairment charges in the future. See Note 8 below, for further discussion.

Other Intangible Assets, net

Other intangible assets, net, primarily include customer relationships, non-compete agreements and trade name acquired from ODL and FXCMJ.

The customer relationships, non-compete agreements and trade name are finite-lived intangibles and are amortized on a straight-line basis over their estimated average useful life of 2 to 9 years, 2 to 3 years and 1 year, respectively. The useful life of these intangibles is based on the period they are expected to contribute to future cash flows as determined by the Company’s historical experience. For these finite-lived intangible assets subject to amortization, impairment is considered upon certain “triggering events” and is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset. There was no impairment of finite-lived intangible assets for the six months ended June 30, 2011 and year ended December 31, 2010.

The FX trading license is an indefinite-lived asset that is not amortized but tested for impairment. The Company’s policy is to test for impairment at least annually or in interim periods if certain events occur indicating that the fair value of the asset may be less than its carrying amount. An impairment test on this indefinite-lived asset is performed during the fourth quarter of the Company’s fiscal year using the October 1 carrying value. Impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. There was no impairment of indefinite-lived intangible assets for the six months ended June 30, 2011 and year ended December 31, 2010.

Equity Method Investment

Investments where the Company is deemed to exercise significant influence (generally defined as owning a voting interest of 20% to 50%), but no control, are accounted for using the equity method of accounting. The Company records its pro-rata share of earnings or losses each period and records any dividends as a reduction in the investment balance. These earnings or losses are included in other income in the condensed consolidated statements of operations and comprehensive income. The carrying amount of equity method investments was $3.4 million and $3.6 million as of June 30, 2011 and December 31, 2010, respectively, and is reflected in other assets in the condensed consolidated statements of financial condition.

Accounts Receivable, net

As of June 30, 2011 and December 31, 2010, accounts receivable, net, consisted primarily of amounts due from institutional customers relating to the Company’s foreign exchange business, and fees receivable from the Company’s white label service to third parties and payments for order flow, described in “Retail Trading Revenue” below. Receivables are shown net of reserves for uncollectible accounts. The reserve for bad debts is maintained at a level that management believes to be sufficient to absorb estimated losses in the accounts receivable portfolio. The reserve is increased by the provision for bad debts which is charged against operating results and decreased by the amount of charge-offs, net of recoveries. The amount charged against operating results is based on several factors including, but not limited to, a continuous assessment of the collectability of each account, the length of time a receivable is past due and our historical experience with the particular customer. Based on management’s assessment of the collectability of each account, there were no uncollectible accounts as of June 30, 2011 and December 31, 2010. The reserve amount netted against receivables in the condensed consolidated statement of financial condition was not material at June 30, 2011. There was no reserve netted against receivables in the condensed consolidated statement of financial condition as of December 31, 2010.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

Foreign Currency

Foreign denominated assets and liabilities are re-measured into the functional currency at exchange rates in effect at the statement of financial condition dates through the statements of operations and comprehensive income. Gains or losses resulting from foreign currency transactions are re-measured using the rates on the dates on which those elements are recognized during the period, and are included in retail trading revenue in the condensed consolidated statements of operations and comprehensive income. The Company recorded a gain of $0.7 million for the three months ended June 30, 2011. The amount resulting from foreign currency transaction remeasurement was not material for the six months ended June 30, 2011. The Company recorded a loss of $3.5 million and a loss of $2.7 million for the three and six months ended June 30, 2010, respectively.

Translation gains or losses resulting from translating the Company’s subsidiaries’ financial statements from the local functional currency to the reporting currency, net of tax, are included in other comprehensive income. Assets and liabilities are generally translated at the balance sheet date while revenues and expenses are generally translated at an applicable average rate.

Guarantees

At the inception of guarantees, if any, the Company will record the fair value of the guarantee as a liability, with the offsetting entry being recorded based on the circumstances in which the guarantee was issued.

Revenue Recognition

The Company makes foreign currency markets for customers trading in foreign exchange spot markets (“Foreign Currencies”) and through its subsidiary FSL, engages in equity and related brokerage activities. Foreign Currencies are recorded on trade date and positions are marked to market daily with related gains and losses, including gains and losses on open spot transactions, recognized currently in income. Commissions earned on brokerage activities are recorded on a trade date basis and are recognized currently in income.

Retail Trading Revenue

Retail trading revenue is earned by adding a markup to the price provided by FX market makers generating trading revenue based on the volume of transactions and is recorded on trade date. The retail trading revenue is earned utilizing an agency model. Under the agency model, when a customer executes a trade on the best price quotation presented by the FX market maker, the Company acts as a credit intermediary, or a riskless principal, simultaneously entering into a trade with the customer and the FX market maker. This agency model has the effect of automatically hedging the Company’s positions and eliminating market risk exposure. Retail trading revenues principally represent the difference of the Company’s realized and unrealized foreign currency trading gains or losses on its positions with customers and the systematic hedge gains and losses from the trades entered into with the FX market makers. Retail trading revenue also includes fees earned from arrangements with other financial institutions to provide platform, back office and other trade execution services. This service is generally referred to as a white label arrangement. The Company earns a percentage of the markup charged by the financial institutions to their customers. Fees from this service are recorded when earned on a trade date basis. Additionally, the Company earns income from trading in contracts for differences (“CFDs”), payments for order flow, rollovers and spread betting. The Company’s policy is to hedge its CFD positions with other financial institutions based on internal guidelines. Income or loss on CFDs represents the difference between the Company’s realized and unrealized trading gains or losses on its positions and the hedge gains or losses with the other financial institutions. Income or loss on CFDs is recorded on a trade date basis. Income or loss on rollovers is the interest differential customers earn or pay on overnight currency pair positions held and the markup that the Company receives on interest paid or received on currency pair positions held overnight. Income or loss on rollovers is recorded on

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TABLE OF CONTENTS

FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

a trade date basis. Income earned on order flow represents payments received from certain FX market makers in exchange for routing trade orders to these firms for execution. The Company’s order routing software ensures that payments for order flow do not affect the routing of orders in a manner that is detrimental to its retail customers. The Company recognizes payments for order flow as earned. Spread betting is where a customer takes a position against the value of an underlying financial instrument moving either upward or downward in the market. Income on spread betting is recorded as earned.

Institutional Trading Revenue

Institutional trading revenue relates to commission income generated by facilitating spot foreign currency trades on behalf of institutional customers through the services provided by the FXCM Pro division. FXCM Pro allows these customers to obtain the best execution price from external banks and routes the trades to outside financial institutions for settlement. The counterparties to these trades are external financial institutions that also hold customer account balances. The Company receives commission income for customers’ use of FXCM Pro without taking any market or credit risk. Institutional trading revenue is recorded on a trade date basis.

Other Income

In January 2007, the Company entered into an agreement to provide trade execution services to a related party, GCI Capital Co. Ltd (“GCI”). As consideration for the services, the Company received an upfront non- refundable payment of $30.0 million in addition to ongoing monthly fees that are recognized when earned. The Company did not receive any ongoing monthly fees for the three and six months ended June 30, 2011 and 2010. Ongoing monthly fees were historically based on a fixed monthly amount and were changed to a variable per trade fee in June 2009. Prior to the acquisition of FXCMJ the upfront fee was deferred and recognized on a straight line basis over the estimated period of performance of 5 years. Upon the consummation of the acquisition, the agreement to provide trade execution services was terminated and the deferred revenue was recognized as income and is included in other income in the condensed consolidated statements of operations and comprehensive income.

Other income also includes amounts earned from the sale of market data, equity and equity option brokerage activities and ancillary fee income.

Referring Broker Fees

Referring broker fees represent commissions paid to brokers for introducing trading customers to the Company. Commissions are determined based on the number and size of transactions executed by the customers and are recorded on a trade date basis.

Stock Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation ( “ASC 718”). The fair value of the Company’s stock-based compensation is estimated using the Black-Scholes option pricing model. The Company recognizes compensation expense for equity awards on a straight-line basis over the requisite service period of the award. Compensation expense is adjusted for an estimate of equity awards that do not vest in the future because service or performance conditions are not satisfied (forfeitures) and have been included in compensation and benefits in the condensed consolidated statements of operations and comprehensive income. See Note 14 for further discussion.

Advertising and Marketing

Advertising and marketing costs are charged to operations when incurred.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2. Significant Accounting Policies and Estimates  – (continued)

General and Administrative Expenses

General and administrative expenses include bank processing and regulatory fees, professional and consulting fees, occupancy and equipment expense and other administrative costs. Bank processing fees are costs associated with the processing of credit card transactions and prime brokerage fees charged by clearing banks. Regulatory fees are volume-based costs charged by certain regulatory authorities.

Income Taxes

Income Taxes — Prior to the IPO in December 2010, the Company has historically operated as partnerships for U.S. federal income tax purposes and mainly as a corporate entity in non-U.S. jurisdictions. As a result, our income was not subject to U.S. federal and state income taxes. Generally, the tax liability related to income earned by these entities represents obligations of the individual partners and members. Income taxes shown on our historical combined income statements are attributable to the New York City unincorporated business tax and other income taxes on certain entities located in non-U.S. jurisdictions.

Following the IPO, FXCM Holdings, LLC and certain of its subsidiaries continue to operate in the United States as partnerships for U.S. federal income tax purposes and generally as corporate entities in non-U.S. jurisdictions. Accordingly, these entities in some cases continue to be subject to New York City unincorporated business taxes or non-U.S. income taxes. In addition, FXCM Inc. is subject to U.S. corporate federal, state and local income taxes that are reflected in our condensed consolidated financial statements.

Allocation and Distribution of Holdings Earnings

The allocation of Holdings’ earnings to the members is determined in accordance with the sharing ratios as defined in the LLC agreement. Distributions to members are made according to the LLC Agreement. Refer to Notes 13, 18 and 22.

Recently Adopted Accounting Pronouncements

During the three and six months ended June 30, 2011, there were no recently issued accounting pronouncements that were applicable and adopted by the Company.

Note 3. Non-Controlling Interest

The Corporation consolidates the financial results of Holdings whereby it records a non-controlling interest for the economic interest in Holdings, held by the existing unit holders (see Note 2). During the six months period ended June 30, 2011, the Company repurchased a portion of its outstanding Class A common stock (see Note 15). Accordingly, the interest in Holdings changed for the Corporation and the non-controlling interest as presented in the following table, with amounts in thousands, except share data:

       
    Economic Interest in Holdings
     Shares
Outstanding
  Non-
Controlling
  FXCM Inc.   Total
Balance as of December 31, 2010     17,319,000       77.00 %      23.00 %      100.00 % 
Class A common stock repurchased in pursuant to publicly announced program     (366,676 )      0.40 %      -0.40 %      0.00 % 
Balance as of June 30, 2011     16,952,324       77.4 %      22.6 %      100.0 % 

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 4. Business Acquisition

Pro Forma Condensed Combined Financial Information

The following pro forma condensed combined financial information presents the results of the operations of the Company as they may have appeared if the acquisition of FXCMJ and ODL had been completed on January 1, 2011 and 2010, with amounts in thousands:

       
  Three Months Ended   Six Months Ended
     June 30,
2011
  June 30,
2010
  June 30,
2011
  June 30,
2010
Total revenues   $ 103,399     $ 107,970     $ 195,975     $ 204,760  
Net Income   $ 3,735     $ 18,943     $ 16,711     $ 36,042  

These pro forma results for the three and six months ended June 30, 2011 and 2010 primarily include the related tax impact and the elimination of certain revenues and expenses resulting from transactions conducted with ODL and FXCMJ prior to the acquisitions.

Note 5. Customer Account Liabilities

Customer account liabilities represent balances held by the Company and margin balances arising in connection with foreign currency transactions, including unrealized gains and losses on open foreign exchange commitments. Customer account liabilities were $839.0 million and $641.2 million as of June 30, 2011 and December 31, 2010, respectively.

Note 6. Equity Method Investment

As of June 30, 2011 and December 31, 2010, the Company had $3.4 million and $3.6 million, respectively, of equity interest in equity method investments, which consisted primarily of a 26% equity interest in a developer of FX trading software. Equity method investments are included in other assets in the condensed consolidated statements of financial condition as of June 30, 2011 and December 31, 2010. Equity method investments are included in corporate for purposes of segment reporting (see Note 21).

Income recognized from equity method investments was not material for the three and six months ended June 30, 2011 and 2010 and is included in other income in the condensed consolidated statements of operations and comprehensive income.

There were no dividend distributions received from the FX trading software developer during the three and six months ended June 30, 2011 and 2010.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 7. Office, Communication and Computer Equipment, net

Office, communication and computer equipment, including leasehold improvements, licenses, capitalized software development costs and capital leases, consisted of the following as of June 30, 2011 and December 31, 2010, with amounts in thousands:

   
  June 30,
2011
  December 31,
2010
Computer equipment   $ 23,546     $ 20,412  
Software     11,161       5,435  
Leasehold improvements     4,657       4,419  
Furniture and fixtures and other equipment     2,089       1,722  
Licenses     16,535       8,083  
Communication equipment     1,133       926  
Construction in Progress     145        
       59,266       40,997  
Less: Accumulated depreciation     (27,807 )      (22,288 ) 
Office, communication and computer equipment, net   $ 31,459     $ 18,709  

Depreciation is computed on a straight-line basis (see Note 2). Depreciation expense was $3.1 million and $5.5 million for the three and six months ended June 30, 2011. Depreciation expense was $1.5 million and $3.0 million for the three and six months ended June 30, 2010. The amount of fixed assets disposed of by the Company during the three and six months ended June 30, 2011 was not material.

Note 8. Goodwill

The following table presents the changes in goodwill by segment during the six months ended June 30, 2011, with amounts in thousands:

     
  Retail
Trading
  Institutional
Trading
  Total
Balance at December 31, 2010   $ 27,105     $ 10,832     $ 37,937  
Goodwill acquired     369             369  
Foreign currency translation adjustment     782       312       1,094  
Balance at June 30, 2011   $ 28,256     $ 11,144     $ 39,400  

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 9. Other Intangible Assets, net

The Company’s acquired intangible assets consisted of the following as of June 30, 2011 and December 31, 2010, with amounts in thousands:

           
  June 30, 2011   December 31, 2010
     Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
Finite-lived intangible assets
                                                     
Customer relationships   $ 23,127     $ (4,237 )    $ 18,890     $ 21,547     $ (2,443 )    $ 19,104  
Non-compete agreements     7,214       (1,984 )      5,230       7,214       (644 )      6,570  
Trade name     338       (255 )      83       330       (83 )      247  
Foreign currency translation adjustment     581       26       607       (199 )            (199 ) 
Total finite-lived intangible assets   $ 31,260     $ (6,450 )    $ 24,810     $ 28,892     $ (3,170 )    $ 25,722  
Indefinite-lived intangible assets
                                                     
License     601             601       600             600  
Exchange membership seat     150             150       150             150  
Total indefinite-lived intangible assets   $ 751     $     $ 751     $ 750     $     $ 750  

Customer relationships, non-compete agreements and trade name are amortized on a straight-line basis over 2 to 9 years, 2 to 3 years and 1 year, respectively, and approximates the weighted average useful lives. Indefinite-lived assets are not amortized (see Note 2). Amortization expense was $1.6 million and $3.3 million for the three and six months ended June 30, 2011, respectively. Amortization expense was not material for the three months ended June 30, 2010 and $0.5 million for the six months ended June 30, 2010. Estimated future amortization expense for acquired intangible assets outstanding as of June 30, 2011 is as follows, with amounts in thousands:

 
Year Ending December 31,   Estimated
Amortization
Expense
Remainder of 2011   $ 3,343  
2012     6,382  
2013     5,005  
2014     3,095  
2015     3,094  
Thereafter     3,891  
     $ 24,810  

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 10. Other Assets

Other assets were comprised of the following as of June 30, 2011 and December 31, 2010, with amounts in thousands:

   
  June 30,
2011
  December 31,
2010
Prepaid expenses   $ 7,088     $ 5,714  
Equity method investments     3,430       3,632  
Employee advances     2,244       2,144  
Deposits     1,722       504  
Other     4       375  
     $ 14,488     $ 12,369  

Note 11. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses were comprised of the following as of June 30, 2011 and December 31, 2010, with amounts in thousands:

   
  June 30,
2011
  December 31,
2010
Operating expenses payable   $ 16,401     $ 14,863  
Settlement reserve     16,140        
Compensation payable     10,285       9,187  
Commissions payable     9,327       8,918  
IPO related costs payable           1,556  
Regulatory fees payable     181       1,514  
Business acquisition cash consideration     2,432       1,432  
     $ 54,766     $ 37,470  

Note 12. Earnings per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company uses the treasury stock method in accordance with ASC 260, Earnings Per Share, to determine the dilutive potential of stock options and Class B common stock that are exchangeable into the Company’s Class A common stock.

In accordance with ASC 260, all outstanding unvested share-based payments that contain rights to non-forfeitable dividends participate in the undistributed earnings with the common stockholders and are therefore participating securities. The shares of Class B common stock do not share in the earnings of the Company and are therefore not participating securities. Accordingly, basic and diluted net earnings per share of Class B common stock have not been presented. Further, EPS for the periods prior to the IPO is not presented since the Company was not a public company and did not have any participating securities.

The Company did not grant stock options during the three and six months ended June 30, 2011. In 2010, an aggregate of 8,127,890 stock options were granted to certain employees, non-employees and members of the board of directors but were not included in the computation of earnings per common share because they were anti-dilutive under the treasury method.

Additionally, as discussed in Note 1, Holdings existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, from and after the first anniversary of the date of the closing of the IPO, (subject to the terms of the exchange agreement as described therein) to exchange their Holding Units for shares of the Corporation’s Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 12. Earnings per Share  – (continued)

reclassifications. These shares were also excluded from the computation of earnings per common shares because they were anti-dilutive under the treasury method.

The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations, with amounts in thousands except per share data:

       
  Three Months ended   Six Months ended June 30
     June 30,
2011
  June 30,
2010
  June 30,
2011
  June 30,
2010
Basic and diluted net income per share:
                                   
Numerator
                                   
Net income available to holders of Class A common stock   $ 3,315     $     $ 6,111     $  
Earnings allocated to participating securities                        
Earnings available for common stockholders   $ 3,315     $        $ 6,111     $       
Denominator for basic net income per share of Class A common stock
                                   
Weighted average shares of Class A common stock     17,214             17,266        
IPO stock options                        
Assumed conversion of Holding Units for Class A common stock                        
Dilutive weighted average shares of Class A common stock     17,214             17,266        
Basic income per share of Class A common stock   $ 0.19     $     $ 0.35     $  
Diluted income per share of Class A common stock   $ 0.19     $     $ 0.35     $  

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 13. Related Party Transactions

The Company has advanced funds to several employees. As of June 30, 2011 and December 31, 2010, the outstanding balance was $2.2 million and $2.1 million, respectively, and is included in other assets in the condensed consolidated statements of financial condition.

Customer account liabilities include balances for employees and shareholders with greater than a 5% ownership in the Company. As of June 30, 2011 and December 31, 2010, employees account liabilities totaled $0.3 million and $3.0 million, respectively and are included in the condensed consolidated statements of financial condition as customer account liabilities. Account liabilities of shareholders with a greater than 5% ownership in the Company was $5.3 million and $10.8 million as of June 30, 2011 and December 31, 2010, respectively and are included in the condensed consolidated statements of financial condition as customer account liabilities.

UK is party to an arrangement with Global Finance Company (Cayman) Limited, (“Global Finance”), and Master Capital Group, S.A.L. (“Master Capital”). A shareholder with greater than a 5% ownership of the Company beneficially owns more than 90% of the equity of Global Finance and Master Capital. Pursuant to such arrangement, Global Finance and Master Capital are permitted to use the brand name “FXCM” and our technology platform to act as our local presence in certain countries in the Middle East and North Africa (“MENA”). UK collects and remits to Global Finance and Master Capital fees and commissions charged by Global Finance and Master Capital to customers in MENA countries. For the three and six months ended June 30, 2011, these fees and commissions were approximately $0.8 million and $1.9 million, respectively. For the three and six months ended June 30, 2010, these fees and commissions were approximately $0.4 million and $0.7 million, respectively. The Company expects to enter into a definitive agreement in the near future.

In June 2011, US entered into an agreement with certain founding members of Holdings, whereby, these members reimburse US for amounts related to NFA and CFTC matters, up to $16.0 million. Refer to Notes 2, 18 and 22 for futher details.

Exchange Agreement

Prior to the completion of the IPO, the LLC Agreement was restated among other things, to modify its capital structure by reclassifying the interests held by its existing owners (i.e. the owners of Holdings prior to the IPO) into a single new class of units (“Holding Units”), Holdings existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, from and after the first anniversary of the date of the closing of the IPO (subject to the terms of the exchange agreement as described therein), to exchange their Holding Units for shares of the Corporation’s Class A Common Stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Payments under Tax Receivable Agreement

The Corporation has entered into a tax receivable agreement with the other members of Holdings that provides for payments, in the aggregate of $72.4 million as of June 30, 2011 and $74.2 million as of December 31, 2010, from time to time by the Corporation to such other members of 85% of the amount of the benefits, if any, that the Corporation is deemed to realize as a result of increases in tax basis and certain other tax benefits related to its entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of the Corporation and not of Holdings. For purposes of the tax receivable agreement, the benefit deemed realized by the Corporation will be computed by comparing the actual income tax liability of the Corporation (calculated with certain assumptions) to the amount of such taxes that the Corporation would have been required to pay had there been no increase to the tax basis of the assets of Holdings as a result of the purchase or exchanges and certain other assumptions. The term of the tax receivable agreement will continue until all such tax benefits

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 13. Related Party Transactions  – (continued)

have been utilized or expired, unless the Corporation exercises its right to terminate the tax receivable agreement for an amount based on the agreed payments remaining to be made under the agreement or the Corporation breaches any of its material obligations under the tax receivable agreement in which case all obligations will generally be accelerated and due as if the Corporation had exercised its right to terminate the agreement.

Note 14. Stock-Based Compensation

On December 1, 2010, (“Grant Date”) at the time of the IPO, the Company granted awards of stock options to purchase 8,042,000 and 85,890 shares of Class A common stock to its employees (“Employee Stock Options”) and the independent board of directors (“Independent Directors Options”), respectively, pursuant to its long term incentive plan (the “LTIP”) (collectively, the “Stock Options”). The Employee Stock Options have a contractual term of seven years and a four-year graded vesting schedule. The Independent Directors Options also have a seven-year contractual term but cliff-vest on the first anniversary after the grant date. The Stock Options have a strike price of $14.00. Under the terms of the LTIP, the Company may issue new shares or treasury shares upon share option exercise.

During the three and six months ended June 30, 2011, 39,000 and 49,000 shares were forfeited, respectively and none were granted for the period. No shares were expired, vested or exercised for the period. The number of shares outstanding at June 30, 2011 was 8,078,890. The weighted average period over which compensation cost on non-vested Stock Options is expected to be recognized is 3.4 years and the unrecognized expense is $32.1 million.

Stock-based compensation before income taxes included in compensation and benefits in the condensed consolidated statements of operations and comprehensive income was $1.9 million for the three months ended June 30, 2011 and $4.2 million for the six months ended June 30, 2011, for the Employee Stock Options. Stock-based compensation before income taxes included in compensation and benefits in the condensed consolidated statements of operations and comprehensive income was not material for the three and six months ended June 30, 2011, for the Independent Directors Options. The Company did not record compensation expense for the three and six months ended June 30, 2010, since the Stock Options were not awarded during the period. The total compensation cost capitalized and included in office, communication and computer equipment, net in the condensed consolidated statements of financial condition was $0.5 million as of June 30, 2011 and was not material as of December 31, 2010.

In arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee turnover. The Company’s forfeiture assumption is based primarily on its turn-over historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the Company’s financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s financial statements. The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

The Company did not have any cash proceeds or income tax benefits realized from the exercise of Stock Options for the three and six months ended June 30, 2011.

Valuation Assumptions

Calculating the fair value of employee stock options requires estimates and significant judgment. The Company uses the Black-Scholes option pricing model to estimate the fair value of its employee stock options.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 15. Stockholders’ Equity

Refer to the description of the Reorganization and IPO as described in Note 1 for further information regarding the current capital structure of the Company.

The Company’s authorized capital stock consists of 3,000,000,000 shares of Class A common stock, par value $.01 per share, 1,000,000 shares of Class B common stock, par value $.01 per share, and 300,000,000 shares of preferred stock, par value $.01 per share.

Class A Common Stock Repurchase Program

On May 17, 2011 the Company’s Board of Directors approved the repurchase of up to $30.0 million of its Class A common stock (the “Stock Repurchase Program”). Purchases under the Stock Repurchase Program may be made from time to time in the open market and in privately negotiated transactions. Under the Stock Repurchase Program, there is no expiration date or other restrictions limiting the period over which the Company can make its share repurchase. The Stock Repurchase Program will expire only when and if the Company has repurchased $30.0 million of its shares under this program. Under the Stock Repurchase Program, repurchased shares are retired and returned to unissued stock. The size and timing of these purchases are based on a number of factors, including price, business and market conditions.

During the six months ended June 30, 2011, the Company repurchased and retired 366,676 shares of its class A common stock for approximately $3.4 million pursuant to the trading program under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The following table presents the changes in the Company’s Class A common stock shares outstanding during the six months ended June 30, 2011, with amounts in thousands:

 
Class A Common Stock   As of June 30,
2011
Balance at December 31, 2010   $ 17,319  
Issued      
Repurchased     (367 ) 
Balance at June 30, 2011   $ 16,952  

As of June 30, 2011, there were no changes to the capital structure of Class B common stock issued and held from December 31, 2010. Therefore, as of June 30, 2011, there were 100 shares of Class B common stock issued and held by the members of Holdings.

Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.

Class A Common Stock

Holders of shares of the Company’s Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Company’s board of directors out of funds legally available therefore, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Upon dissolution or liquidation or the sale of all or substantially all of the Company’s assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of Class A common stock will be entitled to receive pro rata the Company’s remaining assets available for distribution. Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 15. Stockholders’ Equity  – (continued)

Class B Common Stock

Each holder of the Company’s Class B common stock shall be entitled, without regard to the number of shares of Class B common stock held by such holder, to one vote for each Holdings Unit in Holdings held by such holder. The unit holders of Holdings collectively have a number of votes in FXCM Inc. that is equal to the aggregate number of Holdings Units that they hold. Holders of our Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or dissolution of FXCM Inc.

Note 16. Employee Benefit Plan

The Company maintains a defined contribution employee profit-sharing and savings 401(k) plan for all eligible full time employees. The Company was not required to and made no contributions to the plan for the three and six months ended June 30, 2011 and 2010.

Note 17. Net Capital Requirements

US, registered as a futures commission merchant and a retail foreign exchange dealer with the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”), is subject to the NFA’s net capital requirements for forex dealing members. Since the agency model (see Note 1) is not used for all customer transactions, US is required to maintain “adjusted net capital” equal to or in excess of $20 million plus 5% of all liabilities owed to customers exceeding $10 million. Adjusted net capital and the level of notional values under these transactions change from day to day.

HK, organized in Hong Kong, is a licensed leveraged foreign exchange trading company with the Securities and Futures Commission (“SFC”) and is subject to required minimum liquid capital financial requirements.

UK, organized in the U.K., is a registered securities and futures firm with the Financial Services Authority (“FSA”). UK is regulated by the FSA and is subject to minimum capital requirements.

ODL and FSL are organized in the U.K. and are regulated by the FSA. ODL is a registered consolidated group company and FSL is a registered broker dealer. Both ODL and FSL are subject to minimum capital requirements. ODL JL a registered broker dealer organized in Japan, is regulated by the FSA of Japan and is subject to minimum capital requirements. As ODL was acquired by the Company on October 1, 2010, the Company did not have any capital requirements for these entities prior to the acquisition.

FXCMJ, acquired on March 31, 2011 by the Company, is regulated by the FSA in Japan and is subject to minimum capital requirements.

Canada, organized in Nova Scotia, was registered as an exchange contracts dealer with the British Columbia Securities Commission (“BCSC”). Canada ceased operations in October 2009 and deregistered with the BCSC with the ultimate objective of dissolution. Canada was subject to BCSC minimum financial requirements or “risk adjusted capital” as of December 31, 2010. Canada received final deregistration approval in January 2011 and therefore did not have net capital requirements as of June 30, 2011.

Australia, organized in New Zealand, is a registered exchange contract dealer with the Australia Securities & Investments Commission (“ASIC”) and is subject to ASIC minimum financial requirements or “adjusted surplus liquid funds.”

The minimum capital requirements of the above entities may effectively restrict the payment of cash distributions to members.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 17. Net Capital Requirements  – (continued)

The tables below present the capital, as defined by the respective regulatory authority, the minimum capital requirement and the excess capital for US, HK, UK, Canada, Australia, ODL, FSL, ODL JL and FXCMJ as of June 30, 2011 and December 31, 2010, with amounts in millions:

               
  June 30, 2011
     US   HK   UK   Australia   ODL   FSL   ODL JL   FXCMJ
Capital   $ 60.6     $ 16.1     $ 28.7     $ 3.9     $ 26.7     $ 25.2     $ 2.1     $ 12.0  
Minimum capital requirement     26.4       6.2       12.0       1.5       7.0       5.1       0.8       3.6  
Excess capital   $ 34.2     $ 9.9     $ 16.7     $ 2.4     $ 19.7     $ 20.1     $ 1.3     $ 8.4  

               
  December 31, 2010
     US   HK   UK   Canada   Australia   ODL   FSL   ODL JL
Capital   $ 89.4     $ 16.1     $ 28.4     $ 1.0     $ 3.1     $ 6.1     $ 15.4     $ 2.0  
Minimum capital requirement     26.5       5.1       8.9       0.1       0.1       5.5       5.5       1.0  
Excess capital   $ 62.9     $ 11.0     $ 19.5     $ 0.9     $ 3.0     $ 0.6     $ 9.9     $ 1.0  

Note 18. Commitments and Contingencies

Operating Lease Commitments

The Company leases office space and equipment under operating leases. Some of the lease agreements contain renewal options ranging from 3 to 15 years at prevailing market rates. The lease for the office facilities is subject to escalation factors primarily related to property taxes and building operating expenses. Future minimum lease payments under non-cancelable operating leases with terms in excess of one year are as follows as of June 30, 2011, with amounts in thousands:

 
Year Ended December 31   As of June 30,
2011
Remainder of 2011   $ 3,446  
2012     5,979  
2013     4,227  
2014     4,331  
2015     4,179  
Thereafter     29,895  
     $ 52,057  

The aggregate rental expense for operating leases charged to operations, included in general and administrative expense in the condensed consolidated statements of operations and comprehensive income, for the three and six months ended June 30, 2011, was $1.9 million and $3.6 million, respectively. The aggregate rental expense for operating leases charged to operations included in general and administrative expense in the condensed consolidated statement of operations and comprehensive income for the three and six months ended June 30, 2010 was $1.3 million and $2.2 million, respectively. These amounts are net of sublease income that was not material for both periods.

Capital Lease Commitments

The Company leases office equipment under capital leases. Interest paid as part of our capital lease obligation was not material for the three and six months ended June 30, 2011 and 2010. The capital leases expire in 2015. Future minimum lease payments for capital leases are not material for the years 2011 to 2015.

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 18. Commitments and Contingencies  – (continued)

Litigation

The Corporation and its subsidiaries have been named in various arbitration and civil litigation cases brought by customers seeking damages for trading losses. Management has investigated these matters and feels that such cases are without merit and is defending them vigorously. However, the arbitrations and litigations are presently at various stages of the judicial process and no judgment can be made regarding the ultimate outcome of the arbitrators’ and/or court’s decisions.

In June 2010, US was contacted by the NFA requesting information regarding trade execution activities. In November 2010, US was additionally contacted by the CFTC for similar information. In July 2011, US reached a settlement with the NFA in which it neither admitted nor denied having committed any rule violation and whereby US agreed to make a good faith effort to credit accounts of certain of its customers. US also agreed to pay a fine to the NFA. US is also engaged in ongoing discussions with the CFTC with regard to the above inquiry. In the second quarter of 2011, the Company established a reserve of approximately $16.0 million relating to these matters and is included in general and administrative in the condensed consolidated statement of operations and comprehensive income.

In June 2011, US entered into an agreement with certain founding members of Holdings, whereby these members would reimburse US for the amounts related to the NFA and CFTC matters, up to $16.0 million. Consequently, there was no impact to the Corporation’s net income for the three and six months ended June 30, 2011, as the expense was allocated to the respective founding members for such expense as permitted under the terms of the LLC Agreement. In July 2011, $16.0 million of additional capital was provided by the respective founding members (see Notes 2, 13 and 22).

In September 2010, UK became aware of changes in U.S. law that might preclude it from continuing to serve as a counterparty in retail FX transactions with U.S. persons absent registration as a retail foreign exchange dealer, as set forth under Part 5 of the CFTC Regulations, effective as of October 18, 2010. During the three months ended June 30, 2011, the Company established a reserve of $0.1 million relating to this matter and is included in general and administrative in the condensed statement of operations and comprehensive income. In August 2011, UK reached a settlement with the CFTC regarding the 11-day period in 2010 in which UK was not in compliance with the CFTC’s registration requirement. Under the terms of the settlement, UK has agreed to pay a fine of approximately $0.1 million to the CFTC to resolve this matter.

On February 8, 2011, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York by a single former customer against Forex Capital Markets LLC. The complaint asserts claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §1961 et seq., as well as the New York General Business Law. The complaint seeks an unspecified amount of damages, trebled, and alleges false and deceptive trade practices, fraudulent and unfair trade execution and account handling practices. A motion to compel arbitration was filed by Forex Capital Markets LLC during April 2011 and a decision is pending.

On March 3, 2011, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York against FXCM Inc., as well as certain of our officers and directors and three underwriters in our IPO. The complaint asserts claims under Sections 11 and 15 of the Securities Act, alleges false or misleading statements in the IPO prospectus regarding the Company's business model and trading platforms, and sought an unspecified amount of damages on behalf of persons who purchased our Class A common stock in the IPO. On July 1, 2011, a Stipulation of Dismissal with Prejudice (the “Dismissal”) was filed with the United States District Court for the Southern District of New York. As a result of the Dismissal, all claims asserted by Plaintiff against Defendants were dismissed with prejudice.

As discussed above, during three months ended June 30, 2011, the Company established reserves of approximately $16.1 million. As to the other matters described above, the Company cannot predict the loss or

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 18. Commitments and Contingencies  – (continued)

range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company, based on current knowledge and after consultation with counsel, does not expect that the resolution of such other matters will have a material effect on the Company.

It is the opinion of management of the Company that the ultimate outcomes of the matters referenced above are unlikely to have a material adverse effect on the business, financial condition or operating results of the Company. The Company’s condensed consolidated financial statements do not include any accrual for litigation contingency; as such amounts cannot be reasonably estimated and are not expected to have a material impact.

Guarantees

At the inception of guarantees, if any, the Company will record the fair value of the guarantee as a liability, with the offsetting entry being recorded based on the circumstances in which the guarantee was issued. The Company did not have any such guarantees in place as of June 30, 2011 and December 31, 2010.

Note 19. Income Taxes

FXCM’s effective rate was 35.7% and 10.6% for the three and six months ended June 30, 2011, respectively. The effective rate was 7.0% and 8.7% for the three and six months ended June 30, 2010, respectively. FXCM’s income tax provision was $2.0 million and $2.6 million for the three and six months ended June 30, 2011. The income tax provision was $2.4 million and $5.0 million for the three and six months ended June 30, 2010. The increase in the effective tax rate for the three and six months ended June 30, 2011 compared to June 30, 2010 was primarily due to $16.0 million of reserves established relating to a settlement with the NFA and ongoing discussions with the CFTC regarding trade execution activities. A portion of the reserves is not tax deductible, therefore, increasing taxable income and the effective tax rate.

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a limited liability company which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to the non-controlling interest are not subject to corporate level taxes.

During the three months ended June 30, 2011, there were no material changes to the uncertain tax positions. The Company believes that there will not be a significant increase or decrease to the uncertain tax positions within 12 months of the reporting date. The rate fluctuated due to changes in the mix of earnings among different tax jurisdictions including our foreign subsidiaries. The Company’s tax rate may fluctuate due to the impacts that rate mix changes have on our net deferred tax assets.

The Company is no longer subject to tax examinations by taxing authorities for tax years prior to 2007 and, presently, has no open examinations for tax years before 2010.

Note 20. Foreign Currencies and Concentrations of Credit Risk

As a riskless principal under the agency model, the Company accepts and clears foreign exchange spot contracts for the accounts of its customers (see Note 2). These activities may expose the Company to off- balance-sheet risk in the event that the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss.

In connection with these activities, the Company executes and clears customers’ transactions involving the sale of foreign currency not yet purchased, substantially all of which are transacted on a margin basis subject to internal policies. Such transactions may expose the Company to off-balance-sheet risk in the event margin deposits are not sufficient to fully cover losses that customers may incur. In the event that a customer

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 20. Foreign Currencies and Concentrations of Credit Risk  – (continued)

fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligation.

The Company controls such risks associated with its customer activities by requiring customers to maintain margin collateral, in the form of cash, in compliance with various internal guidelines. The Company’s trading software technology monitors margin levels on a real time basis and, pursuant to such guidelines, requires customers to deposit additional cash collateral, or to reduce positions, if necessary. The system is designed to ensure that any breach in a customer’s margin requirement as a result of losses on the trading account will automatically trigger a final liquidation, which will execute the closing of all positions. Exposure to credit risk is therefore minimal. Institutional customers are permitted credit pursuant to limits set by the Company’s prime brokers. The prime brokers incur the credit risk relating to the trading activities of these customers in accordance with the respective agreements between such brokers and the Company.

The Company is engaged in various trading activities with counterparties which include brokers and dealers, futures commission merchants, banks, and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the financial instrument. It is the Company’s policy to: (i) perform credit reviews and due diligence prior to conducting business with counterparties; (ii) set exposure limits and monitor exposure against such limits; and (iii) periodically review, as necessary, the credit standing of counterparties using multiple sources of information. The Company’s due from brokers balance included in the condensed consolidated statements of financial condition was $7.0 million as of June 30, 2011 and not material as of December 31, 2010. Four banks held more than 10% each of the Company’s total cash and cash equivalents and cash and cash equivalents, held for customers as of June 30, 2011. Three banks held more than 10% each of the Company’s total cash and cash equivalents and cash and cash equivalents, held for customers as of December 31, 2010.

Note 21. Segments

ASC 280 Segments Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s operations relate to foreign exchange trading and related services and operate in two segments — retail and institutional, with different target markets and are covered by a separate sales force, customer support and trading platforms. The Company’s segments are organized around three geographic areas. These geographic areas are the United States, Asia and Europe and are based on the location of its customers’ accounts.

Retail Trading

The Company operates its retail business whereby it acts as an agent between retail customers and a collection of large global banks and financial institutions by making foreign currency markets for customers trading in foreign exchange spot markets through its Retail Trading business segment. In addition, the Retail Trading business segment includes the Company’s white label relationships, CFDs, payments for order flow and rollovers.

Institutional Trading

Institutional Trading facilitates spot foreign currency trades on behalf of institutional customers through the services provided by the FXCM Pro Division of US. This service allows customers to obtain the best execution price from external banks and financial institutions.

Information concerning the Company’s operations by reportable segment is as follows, with amounts in thousands:

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)
  
Notes to Unaudited Condensed Consolidated Financial Statements

Note 21. Segments  – (continued)

       
  Three Months Ended June 30, 2011
     Retail
Trading
  Institutional
Trading
  Corporate   Total
Total revenues   $ 96,678     $ 6,721     $     $ 103,399  
Operating expenses     54,955       5,391       37,248       97,594  
Income (loss) before income taxes   $ 41,723     $ 1,330     $ (37,248 )    $ 5,805  

       
  Three Months Ended June 30, 2010
     Retail
Trading
  Institutional
Trading
  Corporate   Total
Total revenues   $ 89,188     $ 7,402     $ 72     $ 96,662  
Operating expenses     44,855       5,564       12,770       63,189  
Income (loss) before income taxes   $ 44,333     $ 1,838     $ (12,698 )    $ 33,473  

       
  Six Months Ended June 30, 2011
     Retail
Trading
  Institutional
Trading
  Corporate   Total
Total revenues   $ 183,951     $ 14,100     $     $ 198,051  
Operating expenses     104,897       10,157       58,186       173,240  
Income (loss) before income taxes   $ 79,054     $ 3,943     $ (58,186 )    $ 24,811  

       
  Six Months Ended June 30, 2010
     Retail
Trading
  Institutional
Trading
  Corporate   Total
Total revenues   $ 159,961     $ 13,589     $ 72     $ 173,622  
Operating expenses     79,374       8,967       28,470       116,811  
Income (loss) before income taxes   $ 80,587     $ 4,622     $ (28,398 )    $ 56,811  

   
Assets   As of
June 30,
2011
  As of
December 31,
2010
Retail   $ 1,129,843     $ 917,857  
Institutional     9,806       18,192  
Corporate     110,248       111,743  
Total assets   $ 1,249,897     $ 1,047,792  

Note 22 — Subsequent Events

We have evaluated our subsequent events through the issuance date of this Quarterly Report on Form 10-Q.

The Company declared a quarterly dividend of $0.06 per share on its outstanding Class A common stock. The dividend is payable on September 30, 2011 to Class A stockholders of record at the close of business on September 19, 2011.

In July 2011, the Company received $16.0 million from certain members pursuant to an agreement with US to reimburse it for amounts related to NFA and CFTC matters (see Notes 2, 13 and 18).

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FXCM Inc.
(Prior to December 7, 2010, FXCM Holdings, LLC and Subsidiaries)

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of FXCM Inc., and the related notes included elsewhere in this report and our Annual Report on Form 10K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011, including the audited consolidated financial statements and related notes and “Management’s Discussion and Analysis of results of Financial Condition and Results of Operations contained therein.” The historical consolidated financial data discussed below reflects the historical results and financial position of FXCM Inc. In addition, this discussion and analysis contains forward looking statements and involves numerous risks and uncertainties, including those described under “Cautionary Note Regarding Forward-Looking Statement” and “Risk Factors.” Actual results may differ materially from those contained in any forward looking statements.

OVERVIEW

Business

The Company is an online provider of foreign exchange (“FX”), trading and related services to approximately 154,786 active retail and institutional customers globally. We offer our customers access to over-the-counter, FX markets through our proprietary technology platform. In a FX trade, a participant buys a currency pair. Our platform presents our FX customers with the best price quotations on up to 56 currency pairs from a number of global banks, financial institutions and FX market makers, which we believe provides our customers with an efficient and cost-effective way to trade FX. We utilize what is referred to as agency execution or an agency model. When our customer executes a trade on the best price quotation offered by our FX market makers, we act as a credit intermediary, or riskless principal, simultaneously entering into offsetting trades with both the customer and the FX market maker. We earn fees by adding a markup to the price provided by the FX market makers and generate our trading revenues based on the volume of transactions, not trading profits or losses.

Industry Trends

Economic Environment — Customer FX trading volumes are impacted by the volatility levels in financial markets. January and February 2011 were periods of primarily low volatility in foreign currencies. However, March was a period of relatively high volatility as a result of global political unrest and the earthquake in Japan and we experienced increased trading activity. Elevated volatility in the foreign currency markets has continued in the second quarter of 2011 with heightened concerns about the fiscal position of some of the Euro zone countries and discussions concerning raising the U.S. debt limit. It is difficult to predict volatility in the FX market.

Competitive Environment — The retail FX trading market is fragmented and highly competitive. Our competitors in the retail market can be grouped into several broad categories based on size, business model, product offerings, target customers and geographic scope of operations. These include U.S. based retail FX brokers, international multi-product trading firms, other online trading firms, and international banks and other financial institutions with significant FX operations. We expect competition to continue to remain strong for the foreseeable future.

Regulatory Environment — Our business and industry are highly regulated. Many of the regulations we are governed by are intended to protect the public, our customers and the integrity of the markets, and not necessarily our shareholders.

Our operating subsidiaries are regulated in a number of jurisdictions, including the United States, the United Kingdom (where regulatory passport rights have been exercised to operate in a number of European Economic Area jurisdictions), Hong Kong, Australia and Japan.

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We are also regulated in all regions by applicable regulatory authorities and the various exchanges of which we are members. For example, we are regulated by the Financial Services Authority in the United Kingdom, or FSA, the Securities and Futures Commission in Hong Kong, or SFC, the Australian Securities and Investment Commission in Australia, or ASIC and the Kanto Local Finance Bureau in Japan, or KLFB, among others. In addition, certain of our branch offices in Europe, while subject to local regulators, are regulated by the FSA with respect to, among other things, FX, CFDs and net capital requirements. These regulators and self-regulatory organizations regulate the conduct of our business in many ways and conduct regular examinations of our business to monitor our compliance with these regulations.

Notwithstanding the foregoing, we accept and seek to deal with customers resident in foreign jurisdictions in a manner which does not breach any local laws or regulations where they are resident or require local registration, licensing or authorization from local governmental or regulatory bodies or self-regulatory organizations. We determine the nature and extent of services we can provide and the manner in which we conduct our business with customers resident in foreign jurisdictions based on a variety of factors.

We evaluate our activities in relation to jurisdictions in which we are not currently regulated by governmental bodies and/or self-regulatory organizations on an ongoing basis. This evaluation may involve speaking with regulators, local counsel and referring brokers or white labels (firms that offer our trading services to their clients under their own brand name in exchange for a revenue sharing arrangement with us) operating in any such jurisdiction and reviewing published regulatory guidance and examining the licenses that any competing firms may have. As a result of these evaluations, we may determine to alter our business practices in order to comply with legal or regulatory developments in such jurisdictions. At any given time, the manner in which we conduct business in any one of these jurisdiction may be changed or in a state of transition. At present, we are in the process of changing how we transact with clients residing in Canada, Japan and Singapore.

As a result, our growth may be limited by future restrictions in these jurisdictions and we remain at risk that we may be exposed to civil or criminal penalties or be required to cease operations if we are found to be operating in jurisdictions without the proper license or authorization or if we become subject to regulation by local government bodies.

The legislative and regulatory environment in which we operate has undergone significant changes in the recent past and there may be future regulatory changes in our industry. The governmental bodies and self-regulatory organizations that regulate our business have proposed and may consider additional legislative and regulatory initiatives and may adopt new or revised laws and regulations. As a result, in the future, we may become subject to new regulations that may affect the way in which we conduct our business and may make our business less profitable.

Business Strategy

We intend to implement the following strategies:

Continue to use our global brand and marketing to drive organic customer growth;
Make selected acquisitions to expand our customer base or add presence in markets where we currently have low penetration;
Expand our range of products to add new customers and increase revenues from existing customers; and
Capture market share from competitors who are unable to keep pace with the changing and demanding regulatory landscape while capitalizing on the long-term benefits associated with a more transparent financial marketplace.

Primary Sources of Revenues

Most of our revenues are derived from fees charged as a commission or markup when our retail or institutional customers execute trades on our platform with our FX market makers. This revenue is primarily a function of the number of active accounts, the volume those accounts trade and the fees we earn on that volume.

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Retail Trading Revenue — Retail trading revenue is our largest source of revenue and is primarily driven by: (i) the number of active accounts and the mix of those accounts, such as low versus high volume accounts; (ii) the volume these accounts trade, which is driven by the amount of funds customers have on deposit and the overall volatility of the FX market; (iii) the size of the markup we receive, which is a function of the mix of currency pairs traded, the spread we add to the prices supplied by our FX market makers and the interest differential between major currencies and the markup we receive on interest paid and received on customer positions held overnight; and (iv) the amount of additional retail revenues earned, including revenues from contracts-for difference (CFD) trading, fees earned through white label relationships and payments we receive for order flow from FX market makers. In addition, 21% and 7% of our retail trading revenues for the three months ended June 30, 2011 and 2010, respectively, were derived from such additional retail revenues earned. For the six months ended June 30, 2011 and 2010, 21% and 4% of retail trading revenue were derived from such additional retail revenues earned.

Institutional Trading Revenue — We generate revenue by executing spot foreign currency trades on behalf of institutional customers through our institutional trading segment, FXCM Pro, enabling them to obtain optimal prices offered by our FX market makers. The counterparties to these trades are external financial institutions that hold customer account balances and settle these transactions. We receive commissions for these services without incurring credit or market risk.

Other — We are engaged in various ancillary FX related services and joint ventures, including use of our platform and trading facilities, providing technical expertise, and earning fees from data licensing. We also earn commission revenue from equity and related brokerage activities.

Primary Expenses

Referring Broker Fees — Referring broker fees consist primarily of compensation paid to our referring brokers and white labels. We generally provide white labels access to our platform, systems and back-office services necessary for them to offer FX trading services to their customers. We also establish relationships with referring brokers that identify and direct potential FX trading customers to our platform. Referring brokers and white labels generally incur advertising, marketing and other expenses associated with attracting the customers they direct to our platform. Accordingly, we do not incur any incremental sales or marketing expense in connection with trading revenue generated by customers provided through our referring brokers and/or white labels. We do, however, pay a portion of the FX trading revenue generated by the customers of our referring brokers and/or white labels and record this under referring broker fees.

Compensation and Benefits — Compensation and benefits expense includes employee and member salaries, bonuses, stock compensation awards, benefits and employer taxes. Changes in this expense are driven by fluctuations in the number of employees, increases in wages as a result of inflation or labor market conditions, changes in rates for employer taxes and other cost increases affecting benefit plans. In addition, this expense is affected by the composition of our work force. The expense associated with our bonus plans can also have a significant impact on this expense category and may vary from year to year.

Advertising and Marketing — Advertising and marketing expense consists primarily of electronic media, print and other advertising costs, as well as costs associated with our brand campaign and product promotion.

Communications and Technology — Communications and technology expense consists primarily of costs for network connections to our electronic trading platforms; telecommunications costs; and fees paid for access to external market data. This expense is affected primarily by the growth of electronic trading, our network/ platform capacity requirements and by changes in the number of telecommunication hubs and connections which provide our customers with direct access to our electronic trading platforms.

General and Administrative — We incur general and administrative costs to support our operations, including:

Professional fees and outside services expenses — consisting primarily of legal, accounting and outsourcing fees;
Bank processing fees — consisting of service fees charged by banks primarily related to our customer deposits and withdrawals;

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Regulatory fees — consisting primarily of fees from regulators overseeing our businesses which are largely tied to our overall trading revenues; and
Occupancy and building operations expense — consisting primarily of costs related to leased property including rent, maintenance, real estate taxes, utilities and other related costs. Our company headquarters are located in New York, NY, with other U.S. offices in Plano, TX and San Francisco, CA. Outside the United States, we have offices in London, Paris, Berlin, Athens, Milan, Hong Kong, Sydney, Jerusalem and Tokyo.

We expect that our general and administrative expenses will increase as a result of the additional legal, accounting, insurance and other expenses associated with being a public company. Among other things, we expect that compliance with the Sarbanes-Oxley Act and related rules and regulations will result in a significant increase in legal and accounting costs.

Depreciation and Amortization — Depreciation and amortization expense results primarily from the depreciation of long-lived assets purchased and internally developed software that has been capitalized. Amortization of purchased intangibles primarily includes amortization of intangible assets obtained through our acquisition of ODL as described in our Annual Report.

Income Taxes — Prior to the initial public offering (“IPO”) in December 2010, we have historically operated as partnerships for U.S. federal income tax purposes and mainly as a corporate entity in non-U.S. jurisdictions. As a result, our income was not subject to U.S. federal and state income taxes. Generally, the tax liability related to income earned by these entities represents obligations of the individual partners and members. Income taxes shown on our historical consolidated income statements are attributable to the New York City unincorporated business tax and other income taxes on certain entities located in non-U.S. jurisdictions.

Following the IPO, FXCM Holdings, LLC and certain of its subsidiaries continue to operate in the United States as partnerships for U.S. federal income tax purposes and generally as corporate entities in non-U.S. jurisdictions. Accordingly, these entities in some cases continue to be subject to New York City unincorporated business taxes or non-U.S. income taxes. In addition, FXCM Inc. is subject to U.S. corporate federal, state and local income taxes that are reflected in our condensed consolidated financial statements.

Other

Non-Controlling Interest — As a result of the IPO, FXCM Inc. is a holding company, and its sole material asset is a controlling equity interest in FXCM Holdings, LLC. As the sole managing member of FXCM Holdings, LLC, FXCM Inc. operates and controls all of the business and affairs of FXCM Holdings, LLC and, through FXCM Holdings, LLC and its subsidiaries, conduct our business. Refer to the financial results of FXCM Holdings, LLC and its subsidiaries, and the ownership interest of the other members of FXCM Holdings, LLC is reflected as a non-controlling interest in the condensed consolidated financial statements of FXCM Inc.

Segment Information

The FASB establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s operations relate to foreign exchange trading and related services and operate in two segments — retail and institutional, with different target markets with separate sales forces, customer support and trading platforms. For financial information regarding our segments, see Note 21 to our condensed consolidated financial statements.

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RESULTS OF OPERATIONS

Acquisition of FXCM Japan Inc.

On March 31, 2011, we acquired a 100% interest in FXCM Japan Inc. (“FXCMJ”), a Japan-based foreign exchange provider, (the “Acquisition”). The Acquisition was designed to increase our profile in the Japanese market and accelerate our growth in continental Asia, utilizing FXCMJ’s relationships and sales force. As consideration, we provided $15.9 million in cash. The Acquisition was accounted for in accordance with FASB ASC 805, Business Combinations. The assets acquired and the liabilities assumed were recorded at their fair values in accordance with FASB ASC 820, Fair Value Measurements and Disclosures.

The Acquisition resulted in an increase in goodwill and intangible assets in our condensed consolidated statement of financial condition. Intangible assets acquired includes retail customer relationships. The Acquisition will result in an increase in amortization of intangible assets in our condensed consolidated statements of operations and comprehensive income as this intangible asset is amortized over its estimated useful life.

The following table sets forth FXCM’s condensed consolidated statements of operations and comprehensive income for the three months ended June 30, 2011 and 2010:

   
  Three Months Ended June 30,
     2011   2010
Revenues
                 
Retail trading revenue   $ 93,482     $ 86,477  
Institutional trading revenue     6,721       7,402  
Interest income     933       489  
Other income     2,263       2,294  
Total revenues     103,399       96,662  
Expenses
                 
Referring broker fees     24,932       21,418  
Compensation and benefits     23,121       17,608  
Advertising and marketing     7,487       5,979  
Communication and technology     8,010       7,260  
General and administrative     29,244       9,181  
Depreciation and amortization     4,740       1,718  
Interest expense     60       25  
Total expenses     97,594       63,189  
Income before income taxes     5,805       33,473  
Income tax provision     2,070       2,358  
Net income     3,735       31,115  
Other Comprehensive income
                 
Foreign currency translation gain/(loss)     471       (186 ) 
Total comprehensive income     4,206       30,929  

Highlights

The three months ended June 30, 2011 experienced strong growth in customer balances with a 97% increase in customer equity to $839.0 million and a 17% increase in active accounts to 154,786 from June 30, 2010.
Total revenues increased 7% to $103.4 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This increase was due primarily to an 8% increase in retail trading revenue, due primarily to retail trading volumes increasing 14% in the second quarter 2011 versus second quarter 2010, partially offset by a 5% decrease in markup to $100 per million traded.
Net income decreased 88% to $3.7 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 as a result of higher expenses, including higher amortization

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of intangibles of ODL, acquired in October 2010 and $16 million of reserves relating to a settlement with the National Futures Association (the “NFA”) and ongoing discussion with the Commodity Futures Trading Commission (the “CFTC”) regarding trade execution activities.

The following table sets forth FXCM’s condensed consolidated statement of operations and comprehensive income for the six months ended June 30, 2011 and 2010:

   
  Six Months Ended June 30,
     2011   2010
Revenues
                 
Retail trading revenue   $ 171,217     $ 154,225  
Institutional trading revenue     14,100       13,589  
Interest income     1,874       1,005  
Other income     10,860       4,803  
Total revenues     198,051       173,622  
Expenses
                 
Referring broker fees     46,533       37,073  
Compensation and benefits     45,707       34,499  
Advertising and marketing     14,505       11,315  
Communication and technology     15,369       12,798  
General and administrative     42,159       17,614  
Depreciation and amortization     8,834       3,461  
Interest expense     133       51  
Total expenses     173,240       116,811  
Income before income taxes     24,811       56,811  
Income tax provision     2,619       4,966  
Net income     22,192       51,845  
Other Comprehensive income
                 
Foreign currency translation gain/(loss)     2,519       (144 ) 
Total comprehensive income     24,711       51,701  

Highlights

The six months ended June 30, 2011 experienced strong growth in customer balances with a 97% increase in customer equity to $839.0 million and a 17% increase in active accounts to approximately 155,000 compared to June 30, 2010.
Total revenue increased 14% to $198.1 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. This increase was due primarily to increases in retail and other. Retail trading revenue increased 11% due primarily to retail trading volumes increasing by 12% in the six months ended June 30, 2011 versus the six months ended June 30, 2010 and markup decreasing 1% to $97 per million traded. Other income increased by $6.1 million or 126% to $10.9 million due primarily to the recognition of $4.5 million in deferred revenue in the first quarter 2011 as income upon the termination of an agreement to provide trade execution services to FXCMJ as well as the inclusion of $3.8 million in revenues in the six months ended June 30, 2011 from ODL’s equity broker-dealer business as a result of the ODL acquisition in October 2010.
Net income decreased 57% to $22.2 million for the period ended June 30, 2011 compared to the six months ended June 30, 2010 as a result of higher expenses, including higher amortization of intangibles of ODL, acquired in October 2010 and $16.0 million of reserves relating to a settlement with the NFA and ongoing discussions with the CFTC regarding trade execution activities.
On March 31, 2011, we completed the acquisition of the retail FX business of FXCMJ. Our acquisition of the retail FX business of FXCMJ is intended to increase our profile and accelerate our growth in the Japanese market utilizing their relationships and sales force.

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Revenues

   
  Three Months Ended June 30,
     2011   2010
     (In thousands, except as noted)
Revenues:
                 
Retail trading revenue   $ 93,482     $ 86,477  
Institutional trading revenue.     6,721       7,402  
Interest income     933       489  
Other income.     2,263       2,294  
Total revenues     103,399       96,662  
Customer equity (dollars in millions)   $ 839     $ 426  
Active accounts     154,786       131,778  
Total retail trading volume(1) (billions)   $ 938     $ 823  
Retail trading revenue per million traded(1)   $ 100     $ 105  

(1) Volumes translated into equivalent U.S. dollars

Retail trading revenue increased by $7.0 million or 8% to $93.5 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This increase was due primarily to retail trading volumes increasing 14% in the second quarter 2011 due to organic growth and the acquisitions of ODL and FXCMJ versus second quarter 2010, partially offset by a 5% decrease in markup to $100 per million traded. Our retail markup is influenced by a number of factors but tends to be negatively impacted by lower volatilities in the currency markets. In the three months ended June 30, 2011, currency volatilities were lower than the three months ended June 30, 2010 on average, the latter period including a very volatile May 2010 where Euro zone troubles were of particular focus.

Institutional trading revenue decreased by $0.7 million or 9% to $6.7 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010. While institutional trading volume increased 7% for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 our markup or institutional trading revenue per million traded declined 15%. Our institutional markup is dependent on customer mix, with some customers paying a higher markup than others. In the second quarter 2011 experienced an adverse customer mix relative to the second quarter 2010.

Interest income increased by $0.4 million or 91% to $0.9 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010. The increase was primarily due to higher cash balances which increased by 97% at June 30, 2011 versus June 30, 2010.

Other income decreased slightly by 1% to $2.3 million for the three months ended June 30, 2011 compared to the three months ended June 30, 2010. The change in other income was due primarily to the inclusion of $1.5 million of deferred revenue relating to an agreement to provide trade execution services to FXCMJ in the three months ended June 30, 2010 compared to nil for the three months ended June 30, 2011. The agreement was terminated in the first quarter of 2011 upon the acquisition of FXCMJ. The decrease in other income is offset partially by $1.1 million in revenues from ODL’s equity broker-dealer business as a result of the ODL acquisition in October 2010.

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  Six Months Ended June 30,
     2011   2010
     (In thousands, except as noted)
Revenues:
                 
Retail trading revenue   $ 171,217     $ 154,225  
Institutional trading revenue.     14,100       13,589  
Interest income     1,874       1,005  
Other income     10,860       4,803  
Total revenues     198,051       173,622  
Customer equity (dollars in millions)   $ 839     $ 426  
Active accounts     154,786       131,778  
Total retail trading volume(1) (billions)   $ 1,759     $ 1,566  
Retail trading revenue per million traded(1)   $ 97     $ 99  

(1) Volumes translated into equivalent U.S. dollars

Retail trading revenue increased by $17.0 million or 11% to $171.2 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. This increase was due primarily to retail trading volumes increasing 12% as a result of organic growth and the acquisitions of ODL and FXCMJ in the six months ended June 30, 2011 versus the six months ended June 30, 2010, partially offset by a 2% decrease in markup to $97 per million traded. Our retail markup is influenced by a number of factors but tends to be negatively impacted by lower volatilities in the currency markets. In the first six months ended June 30, 2011, currency volatilities were lower than the first six months ended June 30, 2010 on average, the latter period including a very volatile May 2010 where Euro zone troubles were of particular focus.

Institutional trading revenue increased by $0.5 million or 4% to $14.1 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. While institutional trading volume increased 7% for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 our markup or institutional trading revenue per million traded declined 15%. Our institutional markup is influenced by customer mix, with some institutional customers paying a higher markup than others. The second quarter 2011 experienced an adverse customer mix relative to the second quarter 2010.

Interest income increased by $0.9 million or 86% to $1.9 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase was primarily due to higher cash balances which increased by 76% at June 30, 2011 versus June 30, 2010.

Other income increased 126% to $10.9 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010, due primarily to the recognition of $4.5 million in deferred revenue in the first quarter 2011 as income upon the termination of an agreement to provide trade execution services to FXCMJ as well as the inclusion of $3.8 million in revenues in the six months ended June 30, 2011 from ODL’s equity broker-dealer business as a result of the ODL acquisition in October 2010.

Expenses

   
  Three Months Ended June 30,
     2011   2010
     (In thousands)
Expenses:
                 
Referring broker fees   $ 24,932     $ 21,418  
Compensation and benefits     23,121       17,608  
Advertising and marketing     7,487       5,979  
Communications and technology     8,010       7,260  
General and administrative     29,244       9,181  
Depreciation and amortization     4,740       1,718  
Interest expense     60       25  
Total expenses   $ 97,594     $ 63,189  

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Referring broker fees increased $3.5 million or 16% to $24.9 million for the three months ended June 30, 2011 compared to the three months ended June, 2010. The change was due primarily to a higher proportion of the Company’s volume derived from indirect sources and the inclusion of ODL in the Company’s results. Indirect volume increased 26% for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010 due primarily to a higher proportion of trading volume in the three months ended June 30, 2011 being derived from Asia, where the Company typically has more referring broker relationships than other regions. In addition, ODL which was acquired in October 1, 2010 added $0.6 million in referring broker fees in the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.

Compensation and benefits expense increased $5.5 million or 31% to $23.1 million for the three months ended June 30, 2011 compared to the same period in 2010. The change was due primarily to $2.0 million in stock compensation expense resulting from stock options awards granted at the time of the IPO in December 2010, and $3.5 million from ODL and FXCMJ which were acquired in October 2010 and March 31, 2011, respectively.

Advertising and marketing expense increased $1.5 million or 25% to $7.5 million for the three months ended June 30, 2011 compared to the same period in 2010. The Company has been increasing spending of advertising and marketing to further growth, including initiating a sponsorship of a FX television show on the CNBC television network in the first quarter of 2011.

Communications and technology expense increased $0.8 million or 10% to $8.0 million for the three months ended June 30, 2011, compared to the same period in 2010. $1.9 million of the increase resulted from the inclusion of ODL’s and FXCMJ’s communication and technology costs included in the Company’s results of operations compared to the three months ended June 30 2010, offset by a decrease in communication and technology expense during the quarter ended June 30, 2011 compared to the same prior period. Prior period’s expense included $0.5 million of disputed charges from a third party provider which were subsequently settled in the Company’s favor and a $0.8 million decrease in communication and technology expense due to increased capitalized software costs.

General and administrative expense increased $20.1 million or 219% to $29.2 million for the three months ended June 30, 2011 compared to the same period in 2010. $16.0 million in the increase was due to reserves established in anticipation of a settlement with the NFA and the CFTC relating to trade execution activities, $2.7 million due to the inclusion of ODL and FXCMJ in the results of the three months ended June 30, 2011, and $1.3 million in higher bank fees, primarily prime brokerage fees.

Depreciation and amortization expense rose $3.0 million or 176% to $4.7 million during the three months ended June 30, 2011 compared to the same period in 2010. Of this amount, $1.6 million was increased amortization due to the amortization of intangibles acquired in the ODL and FXCMJ purchases, $0.5 million due to the inclusion of ODL and FXCMJ in the Company’s results in the three months ended June 30, 2011 following the acquisition of ODL and FXCMJ in October 2010 and March 31, 2011, respectively. The remainder is due to higher depreciation and amortization expense resulting from higher office, communication, computer equipment and software.

   
  Six Months Ended June 30,
     2011   2010
     (In thousands)
Expenses:
                 
Referring broker fees   $ 46,533     $ 37,073  
Compensation and benefits     45,707       34,499  
Advertising and marketing     14,505       11,315  
Communications and technology     15,369       12,798  
General and administrative     42,159       17,614  
Depreciation and amortization     8,834       3,461  
Interest expense     133       51  
Total expenses   $ 173,240     $ 116,811  

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Referring broker fees increased $9.5 million or 26% to $46.5 million for the six months ended June 30, 2011 compared to the six months ended June, 2010. The change was due primarily to a higher proportion of the Company’s volume derived from indirect sources and the inclusion of ODL in the Company’s results. Indirect volume increased 28% for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 due primarily to a higher proportion of trading volume in the six months ended June 30, 2011 being derived from Asia, where the Company typically has more referring broker relationships than other regions. In addition, ODL which was acquired in October 1, 2010 added $1.7 million in referring broker fees in the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

Compensation and benefits expense increased $11.2 million or 32% to $45.7 million for the six months ended June 30, 2011 compared to the same period in 2010. The change was due primarily to $4.4 million in stock compensation expense resulting from stock options awards granted at the time of the IPO in December 2010 and $5.9 million from ODL and FXCMJ which were acquired in October 2010 and March 31, 2011, respectively.

Advertising and marketing expense increased $3.2 million or 28% to $14.5 million for the six months ended June 30, 2011 compared to the same period in 2010. The Company has been increasing spending of advertising and marketing to further growth, including initiating a sponsorship of a FX television show on the CNBC television network in the first quarter of 2011.

Communications and technology expense increased $2.6 million or 20% to $15.4 million for the six months ended June 30, 2011, compared to the same period in 2010. $2.8 million of the increase is due to the acquisition of ODL and FXCMJ offset by a slight decrease in communication and technology expense relating to our institutional trading as correlated to the small decrease in institutional trading revenues for the six months ended June 30, 2011.

General and administrative expense increased $24.5 million or 139% to $42.2 million for the six months ended June 30, 2011 compared to the same period in 2010. $16.0 million is the increase was due to reserves established in anticipation of a settlement with the NFA and the CFTC relating to trade execution activities, $5.4 million due to the inclusion of ODL and FXCMJ in the results of the six months ended June 30, 2011, $1.2 million in higher bank fees, primarily prime brokerage fees, $1.2 million in higher professional fees due to an expansion in our business and $0.4 million in higher rent expense.

Depreciation and amortization expense rose $5.4 million or 155% to $8.8 million during the six months ended June 30, 2011 compared to the same period in 2010. Of this amount, $3.1 million was increased amortization due to the amortization of intangibles acquired in the ODL and FXCMJ purchases, $0.8 million due to the inclusion of depreciation related to ODL and FXCMJ in the Company’s results in the three months ended June 30, 2011 following the acquisition of ODL and FXCMJ in October 2010 and March 31, 2011, respectively. The remainder is higher depreciation and amortization expense resulting from higher office, communication, computer equipment and software.

Income Taxes

   
  Three Months Ended June 30,
     2011   2010
     (In thousands, except percentages)
Income before income taxes   $ 5,805     $ 33,473  
Income tax provision   $ 2,070     $ 2,358  
Effective tax rate     35.7 %      7.0 % 

Income tax provision decreased $0.3 million or 12% to $2.1 million for the three months ended June 30, 2011 compared to the same period in 2010. FXCM’s effective rate increased to 35.7% for the three months ended June 30, 2011 from 7.0% for the three months ended June 30, 2010.

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a limited liability company which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to the non-controlling interest are not subject to corporate level taxes. The increase in the effective tax rate for the three months ended June 30, 2011 from

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June 30, 2010 was due primarily to $16.0 million of reserve recorded in anticipation of a settlement with the NFA and CFTC relating to trade execution activities. A portion of the reserve is not tax deductible, therefore, increasing taxable income, income tax provision and the effective tax rate.

   
  Six Months Ended June 30,
     2011   2010
     (In thousands, except percentages)
Income before income taxes   $ 24,811     $ 56,811  
Income tax provision   $ 2,619     $ 4,966  
Effective tax rate     10.6 %      8.7 % 

Income tax provision decreased $2.3 million or 47% to $2.6 million for the six months ended June 30, 2011 compared to the same period in 2010. FXCM’s effective rate increased to 10.6% for the six months ended June 30, 2011 from 8.7% for the six months ended June 30, 2010.

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a limited liability company which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to the non-controlling interest are not subject to corporate level taxes. The increase in the effective tax rate for the six months ended June 30, 2011 from June 30, 2010 was due primarily to $16.0 million of reserve recorded in anticipation of a settlement with the NFA and CFTC relating to trade execution activities. A portion of the reserve is not tax deductible, therefore, increasing taxable income, income tax provision and the effective tax rate.

Segment Results

Period ended June 30, 2011 and 2010

Retail trading — Retail Trading is our largest segment and consists of providing FX trading and related services to approximately 154,785 active retail customers globally as of June 30, 2011.

Revenues, operating expenses and income before income taxes of the Retail Trading segment for the three months ended June 30, 2011 and 2010 are as follows:

   
  Three Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $ 96,678     $ 89,188  
Operating expenses     54,955       44,855  
Income before income taxes   $ 41,723     $ 44,333  

Revenues for the Retail Trading segment increased $7.5 million or 8.0% for the three ended June 30, 2011 compared to the same period in 2010. The increase is a result of retail customer trading volume increased 14% to $938 billion, partially offset by markup for retail trading revenue per million traded decreasing 5% from $105 to $100.

Operating expenses increased $10.1 million to $55.0 million for the period ended June 30, 2011 compared to the same period in 2010. The increase was due primarily to $3.2 million in higher referring broker fees, $1.2 million in higher compensation and benefits expense, $3.0 million in higher depreciation and amortization expense, $1.5 million or 25% in higher advertising and marketing expense and $1.2 million of higher general and administrative expenses. The increase in referring broker expense was due primarily to a higher proportion of the Company’s volume derived from indirect sources and the inclusion of ODL in the Company’s results. The increase in compensation and benefits expense was due primarily to stock compensation expense resulting from stock options awards granted at the time of the IPO in December 2010 and the inclusion of ODL’s and FXCMJ’s compensation and benefit expenses in the Company’s result for the three months ended June 30, 2011 compared to the same period ended June 30, 2010. The increase in depreciation and amortization expense was due primarily to the amortization of intangibles acquired in the ODL and FXCMJ purchases and the inclusion of ODL’s and FXCMJ’s depreciation and amortization expenses in the Company’s results in the three months ended June 30, 2011 following the acquisitions of ODL and

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FXCMJ in October 2010 and March 2011, respectively. The Company has been increasing spending of advertising and marketing to further growth, including initiating a sponsorship of a FX television show on the CNBC television network in the first quarter of 2011. The increase in general and administrative expense fees was primarily due to the inclusion of ODL and FXCMJ in the Company’s results for the three months ended June 30, 2011 compared to the same period ended June 30, 2010 and higher prime brokerage fees and credit card processing fees.

Revenues, operating expenses and income before income taxes of the Retail Trading segment for the six months ended June 30, 2011 and 2010 are as follows:

   
  Six Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $ 183,951     $ 159,961  
Operating expenses     104,897       79,374  
Income before income taxes   $ 79,054     $ 80,587  

Revenues for the Retail Trading segment increased $24.0 million or 15% for the six months ended June 30, 2011 compared to the same period in 2010. The increase is a result of retail customer trading volume increased 12% to $1,759 billion, partially offset by the markup for retail trading revenue per million traded decreasing 1% from to $99 from $97, and the recognition of $4.5 million of deferred revenue as income upon the termination of an agreement to provide trade execution services to FXCMJ in the six months ended June 30, 2011, partially offset by the inclusion of $3.8 million in revenues from ODL’s equity broker-dealer business in the six months ended June 30, 2011, acquired in October 2010.

Operating expenses increased $25.5 million for the six months ended June 30, 2011 compared to the same period in 2010. The increase was due primarily to $8.8 million or 24% higher referring broker fees, $4.8 million or 21% in higher compensation and benefits expense, $5.4 million or 100% higher depreciation and amortization expense, $3.2 million or 28% in higher advertising and marketing expense and $3.3 million or 67% of higher general and administrative expenses. The increase in referring broker expense was due primarily to a higher proportion of the Company’s volume derived from indirect sources and the inclusion of ODL in the Company’s results. The increase in compensation and benefits expense was due primarily to stock compensation expense resulting from stock options awards granted at the time of the IPO in December 2010 and the inclusion of ODL’s and FXCMJ’s compensation and benefit expenses in the Company’s result for the six months ended June 30, 2011 compared to the same period ended June 30, 2010. The increase in depreciation and amortization expense was due primarily to the amortization of intangibles acquired in the ODL and FXCMJ purchases and the inclusion of ODL’s and FXCMJ’s depreciation and amortization expenses in the Company’s results in the six months ended June 30, 2011 following the acquisitions of ODL and FXCMJ in October 2010 and March 2011, respectively. The Company has been increasing spending of advertising and marketing to further growth, including initiating a sponsorship of a FX television show on the CNBC television network in the first quarter of 2011. The increase in general and administrative expense fees was primarily due to the inclusion of ODL and FXCMJ in the Company’s results for the six months ended June 30, 2011 compared to the same period ended June 30, 2010 and higher prime brokerage fees.

Institutional Trading — Our institutional Trading segment operates under the name FXCM Pro and generates revenues by executing spot foreign currency trades on behalf of institutional customers, enabling them to obtain optimal prices offered by our FX market makers. The counterparties to these trades are external financial institutions that hold customers account balances and settle these transactions. We receive commissions for these services without incurring credit or market risk.

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Revenues, operating expenses and income before income taxes of the Institutional Trading segment for the periods ended June 30, 2011 and 2010 are as follows:

   
  Three Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $ 6,721     $ 7,402  
Operating expenses     5,391       5,564  
Income before income taxes   $ 1,330     $ 1,838  

Revenues for our Institutional Trading segment decreased $0.7 million or 9% to $6.7 million for the period ended June 30, 2011 compared to the period ended June 30, 2010. While institutional trading volume increased 7% for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 our markup or institutional trading revenue per million traded declined 15%. Our institutional markup is dependent on customer mix, with some customers paying a higher markup than others. In the second quarter 2011 experienced an adverse customer mix relative to the second quarter 2010.

Operating expenses decreased insignificantly by $0.2 million or 3% to $5.4 million for the period ended June 30, 2011 compared to the period ended June 30, 2010. The change is due primarily to $1.1 million or 46% increase in communication and technology expense, which reflected the settlement of a disputed amount in 2010 to a third party provider of the platform used by the institutional segment which was non-recurring in 2011. This was offset by higher referring broker fees of $0.3 million and by $0.5 million in higher compensation and benefits expense resulting from stock options awards granted at the time of the IPO in December 2010 and higher benefit costs.

   
  Six Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $ 14,100     $ 13,589  
Operating expenses     10,157       8,967  
Income before income taxes   $ 3,943     $ 4,622  

Revenues for our Institutional Trading segment increased $0.5 million or 4% for the six months ended June 30, 2011 compared to the same period in 2010. While institutional trading volume increased 16% for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 our markup or institutional trading revenue per million traded declined 15%. Our institutional markup is influenced by customer mix, with some institutional customers paying a higher markup than others. In the second quarter 2011 experienced an adverse customer mix relative to the second quarter 2010.

Operating expenses increased $1.2 million or 13% for the six months ended June 30, 2011 compared to the same period in 2010. The change is due primarily to $0.6 million or 191% of higher referring broker fees due to higher business activity, $0.9 million in higher compensation and benefits expense resulting from stock options awards granted at the time of the IPO in December 2010 and higher benefit costs, offset by $0.7 million of lower communication and technology expense, due to a non-recurring lump sum settlement of a disputed amount in the prior year to a third party provider of the platform used by the institutional segment to provide trading services.

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Corporate — Loss before income taxes of the Corporate segment for the periods ended June 30, 2011 and 2010 are as follows:

   
  Three Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $     $ 72  
Operating expenses     37,248       12,770  
Loss before income taxes   $ (37,248 )    $ (12,698 ) 

Loss before income taxes increased $24.5 million or 193% to $37.2 million for the three months ended June 30, 2011 compared to the same period in 2010. The increase was primarily due to the $16 million regulatory settlement reserve established, higher compensation cost of $3.8 million and $1.9 million in Communication and Technology costs resulting from the inclusion of ODL and $1.3 million in general and administrative costs, $0.6 million due to increased rent and occupancy expenses resulting from additional branch office openings in Europe, the relocation of our Hong Kong office as well as increased office space in New York, and $0.8 million due to an increase in, legal and accounting fees.

   
  Six Months Ended
     June 30,
2011
  June 30,
2010
     (In thousands)
Revenues   $     $ 72  
Operating expenses     58,186       28,470  
Loss before income taxes   $ (58,186 )    $ (28,398 ) 

Loss before income taxes increased $29.7 million for the six months ended June 30, 2011 compared to the same period in 2010. The increase was primarily due to the $16 million regulatory settlement reserve and higher compensation cost of $5.4 million resulting from the inclusion of ODL and stock compensation awards. Communication and Technology costs were $3.2 million higher and general and administrative costs increased $2.5 million also as a result of the addition of ODL costs. $1.4 million in increased rent and occupancy expenses were the result of additional branch office openings in Europe, the relocation of our Hong Kong office and increased office space in New York, and $1.2 million was due to an increase in legal and accounting fees.

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LIQUIDITY AND CAPITAL RESOURCES

We have historically financed, and plan to continue to finance, our operating liquidity and capital needs with funds generated from operations. We primarily invest our cash in short-term demand deposits at various financial institutions. In general, we believe all our deposits are with institutions of high credit quality and we have sufficient liquidity to conduct the operations of our businesses.

As a holding company, almost all of the funds generated from our operations are earned by our operating subsidiaries. We access these funds through receipt of dividends from these subsidiaries. Some of our subsidiaries are subject to requirements of various regulatory bodies relating to liquidity and capital standards, which may limit the funds available for the payment of dividends to us.

       
    As of June 30, 2011
     Regulatory
Jurisdiction
  Minimum
Regulatory
Capital
Requirements
  Capital
Levels
Maintained
  Excess
Net Capital
     (In millions)
Forex Capital Markets, LLC     USA     $ 26.4     $ 60.6     $ 34.2  
Forex Capital Markets, Ltd.     U.K.       12.0       28.7       16.7  
FXCM Asia, Ltd.     Hong Kong       6.2       16.1       9.9  
FXCM Australia, Ltd.     Australia       1.5       3.9       2.4  
ODL Group, Ltd.     U.K.       7.0       26.7       19.7  
FXCM Securities, Ltd.     U.K.       5.1       25.2       20.1  
ODL Japan, Ltd.     Japan       0.8       2.1       1.3  
FXCM Japan Inc.     Japan       3.6       12.0       8.4  

Cash Flow and Capital Expenditures

Six months Ended June 30, 2011 and 2010

The following table sets forth a summary of our cash flow for the six months ended June 30, 2011 and 2010:

   
  June 30, 2011   June 30,
2010
     (In thousands)
Cash provided by operating activities   $ 29,365     $ 57,329  
Cash used for investing activities     (21,093 )      (3,538 ) 
Cash used for financing activities     (23,875 )      (40,722 ) 
Effect of foreign currency exchange rate changes on cash and cash equivalents     1,812       83  
Net increase (decrease) in cash and cash equivalents     (13,791 )      13,152  
Cash and cash equivalents – end of period   $ 179,539     $ 153,010  

Cash provided by operating activities was $29.4 million for the six months ended June 30, 2011 compared to $57.3 million for the six months ended June 30, 2010, a decrease of $28.0 million. This decrease was primarily due to a decrease in net income of $29.7 million and an increase in the adjustments to reconcile net income to net cash provided by operating activities in the amount of $1.7 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The adjustments to reconcile net income to net cash provided by operating activities was primarily a result of a increase in accounts receivable of $0.7 million for the six months ended June 30, 2011 compared to a decrease of $2.7 million for the six months ended June 30, 2010, a decrease in due to brokers of $10.5 million for the six months ended June 30, 2011 compared to an increase of $7.1 million for the six months ended June 30, 2010, an decrease in deferred gains of $9.9 million for the six months ended June 30, 2011 versus $0.6 million for the six months ended June 30, 2010 as a result of $6.0 million of deferred revenue as income upon the termination of an agreement to provide trade execution services to FXCMJ, depreciation and amortization expense of $8.8 million versus $3.5 million for the six months ended June 30, 2011 and 2010, respectively, due to an increase of the

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expenses relating to the amortization of intangible assets resulting from the purchases of ODL and FXCMJ and equity compensation expense of $4.4 million for the six months ended June 30, 2011 relating to stock compensation awards granted at the time of the Company’s IPO.

Cash used in investing activities was $21.1 million for the six months ended June 30, 2011 compared to $3.5 million for the six months ended June 30, 2010, an increase of $17.6 million. The reason for the increase in cash used was $15.7 million for the purchase of fixed assets for the six months ended June 30, 2011 compared to $3.5 million for the purchase of fixed assets for the three months ended June 30, 2010, cash paid for the acquisition of FXCMJ of $4.9 million and purchase of intangible assets in the amount of $0.5 million.

Cash used in financing activities was $23.9 million for the six months ended June 30, 2011 compared to $40.7 million for the six months ended June 30, 2010, a decrease of $16.8 million. The decrease in cash used in financing activities was due to a distribution to members in the amount of $18.3 million for the six months ended June 30, 2011 compared to a payout of $40.7 million in the six months ended June 30, 2010, Dividends paid in the amount of $2.1 million and the repurchase of treasury stock in the amount of $3.4 million.

Capital expenditure $15.7 million for the six months ended June 30, 2011 and $3.5 million for the six months ended June 30, 2010. Capital expenditure for the six months ended June 30, 2011 relate to software of $4.2 million, licenses of $8.3 million and computer equipment of $3.0 capitalized.

NON-GAAP FINANCIAL MEASURES

Management uses certain financial measures to evaluate our operating performance, as well as the performance of individual employees, that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies.

More specifically, we utilize results presented on an Adjusted Pro Forma basis, including Adjusted EBITDA that excludes certain items relating to the initial public offering of FXCM Inc. and also reflects the exchange of all units of FXCM Holdings, LLC for shares of Class A common stock of FXCM Inc. We believe that these Adjusted Pro Forma measures, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare our results across different periods and facilitate an understanding of our operating results. The differences between Adjusted Pro Forma and U.S. GAAP results are as follows:

1. Assumed Exchange of Units of FXCM Holdings, LLC for FXCM Inc. Class A Shares.  As a result of the exchange of FXCM Holdings units, the noncontrolling interest related to these units is converted to controlling interest. The Company’s management believes that it is useful to provide the per-share effect associated with the assumed exchange of all FXCM Holdings units
2. Stock Based Compensation Expense.  Adjustments have been made to the Adjusted Pro Forma Earnings to eliminate expense relating to stock based compensation. The Company’s management believes it is useful to provide the effects of eliminating these expenses.
3. Income Taxes.  Prior to the initial public offering we were organized as a series of limited liability companies and foreign corporations and, even following the initial public offering, not all of the Company income is subject to corporate-level taxes. Adjustments have been made to the Adjusted Pro Forma tax provisions and earnings to assume that we had adopted a conventional corporate tax structure and are taxed as a C corporation in the U.S. at the prevailing corporate rates, that all deferred tax assets relating to foreign operations are fully realizable within the structure on a consolidated basis and that adjustments for deferred tax assets related to the ultimate tax deductions for equity-based compensation awards are made directly to stockholders’ equity. This assumption is consistent with the assumption that all FXCM Holdings’ units are exchanged for shares of FXCM Inc. Class A common stock, as discussed in Item 1 above as the assumed exchange would change our tax structure of the Company.
4. Regulatory Reserve.  During the three months ended June 30, 2011, the Company established a reserve of $16.0 million regarding a settlement with the NFA and ongoing discussions with the

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CFTC relating to trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings LLC, certain founding members of FXCM Holdings agreed to reimburse the cost of these matters, up to $16.0 million. In July 2011, $16.0 million of additional capital was provided by the respective founding members and their capital accounts were increased and decreased for the funding and expense, respectively, in accordance with their membership interest in Holdings. Given there was no impact to FXCM Inc.'s net income for the three and six months ended June 30, 2011 as the expense was allocated to such members as permitted under the specific allocations terms of Holdings’ partnership agreement, the Company believes it is useful to provide the effects of eliminating these expenses.

The following table reconciles our Adjusted Pro Forma results with our results presented in accordance with U.S. GAAP for the three months ended June 30, 2011 and 2010:

           
  Three Months Ended June 30,
     2011   2010
     In millions
     As
Reported
  Adjustments   Adjusted
Pro Forma
  As
Reported
  Adjustments   Adjusted
Pro Forma
Revenues   $ 103,399           $ 103,399     $ 96,662           $ 96,662  
Expenses
                                                     
Referring broker fees     24,932             24,932       21,418             21,418  
Compensation and benefits     23,121       (1,967 )(1)      21,154       17,608             17,608  
Depreciation and amortization     4,740             4,740       1,718             1,718  
Other expense     44,801       (16,000 )(2)      28,801       22,445             22,445  
Total expenses     97,594       (17,967 )      79,627       63,189             63,189  
Income before income taxes     5,805       17,967       23,772       33,473             33,473  
Income tax provision     2,070       6,070 (3)      8,140       2,358       10,027 (3)      12,385  
Net income     3,735       11,897       15,632       31,115       (10,027 )      21,088  
Net income attributable to non-controlling interest     420       (420 )(4)            31,115       (31,115 )(4)       
Net income attributable to FXCM Inc.   $ 3,315       12,317     $ 15,632             21,088       21,088  
Pro Forma fully exchanged, fully diluted shares outstanding                 75,195 (5)                  75,300 (5) 
Adjusted Pro Forma net income per fully exchanged, fully diluted shares outstanding               $ 0.21                 $ 0.28  

(1) Represents the elimination of equity-based compensation.
(2) Represents an adjustment to reflect a reserve established relating to a settlement with the NFA and ongoing discussions with the CFTC regarding trade execution activities. Pursuant to an agreement with a

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subsidiary of FXCM Holdings, certain founding members of FXCM Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.’s net income for the three and six months ended June 30, 2011 as the entire expense was allocated to such founding members. In July 2011, $16.0 million of additional capital was provided by the respective founding members.
(3) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 34.2% and 37.0% for the three months ended June 30, 2011 and 2010, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company.
(4) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
(5) Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.

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The following table reconciles our Adjusted Pro Forma results with our results presented in accordance with U.S. GAAP for the six months ended June 30, 2011 and 2010:

           
  Six Months Ended June 30,
     2011   2010
     In millions
     As
Reported
  Adjustments   Adjusted
Pro Forma
  As
Reported
  Adjustments   Adjusted
Pro Forma
Revenues   $ 198,051           $ 198,051     $ 173,622           $ 173,622  
Expenses
                                                     
Referring broker fees     46,533             46,533       37,073             37,073  
Compensation and benefits     45,707       (4,400)(1)       41,307       34,499             34,499  
Depreciation and amortization     8,834             8,834       3,461             3,461  
Other expense     72,166       (16,000)(2)       56,166       41,778             41,778  
Total expenses     173,240       (20,400 )      152,840       116,811             116,811  
Income before income taxes     24,811       20,400       45,211       56,811             56,811  
Income tax provision     2,619       13,221 (3)      15,840       4,966       16,023 (3)      20,989  
Net income     22,192       7,179       29,371       51,845       (16,023       35,822  
Net income attributable to non-controlling interest     16,081       (16,081 )(4)            51,845       (51,845 )(4)       
Net income attributable to FXCM Inc.   $ 6,111       23,260     $ 29,371             35,822       35,822  
Pro Forma fully exchanged, fully diluted shares outstanding                 75,247 (5)                  75,300 (5) 
Adjusted Pro Forma net income per fully exchanged, fully diluted shares outstanding               $ 0.39                 $ 0.48  

(1) Represents the elimination of equity-based compensation.
(2) Represents an adjustment to reflect a reserve established relating to a settlement with the NFA and ongoing discussions with the CFTC regarding trade execution activities. Pursuant to an agreement with a subsidiary of FXCM Holdings, certain founding members of FXCM Holdings agreed to reimburse the cost of these matters, up to $16.0 million. Consequently, there was no impact to FXCM Inc.’s net income for the three and six months ended June 30, 2011 as the entire expense was allocated to such founding members. In July 2011, $16.0 million of additional capital was provided by the respective founding members.
(3) Represents an adjustment to reflect the assumed effective corporate tax rate of approximately 35.0% and 36.9% for the three months ended June 30, 2011 and 2010, respectively, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction. The adjustment assumes full exchange of existing unitholders FXCM Holdings, LLC units for shares of Class A common stock of the Company.

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(4) Represents the elimination of the non-controlling interest associated with the ownership by existing unitholders of FXCM Holdings, LLC (excluding FXCM, Inc.), as if the unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.
(5) Fully diluted shares assuming all unitholders had fully exchanged their FXCM Holdings, LLC units for shares of Class A common stock of the Company.

The following table reconciles adjusted EBITDA to Adjusted Pro Forma Net Income, as presented and reconciled in the prior table for the three and six months ended June 30, 2011 and 2010:

       
  Three Months Ended   Six Months Ended
     June 30,
2011
  June 30,
2010
  June 30,
2011
  June 30,
2010
     In millions
Net income attributable to FXCM Inc.     15,632       21,088       29,371       35,822  
Net income attributable to non-controlling interest                        
Provision for income taxes     8,140       12,385       15,840       20,989  
Depreciation and amortization     4,740       1,718       8,834       3,461  
EBITDA     28,512       35,191       54,045       60,272  

Contractual Obligations and Commercial Commitments

The following tables reflect a summary of our contractual cash obligations and other commercial commitments at June 30, 2011:

         
  As of June 30, 2011
     Total   Less Than
1 Year
  1 – 3 Years   3 – 5 Years   More Than
5 Years
     (In thousands)
Lease obligations   $ 50,303     $ 2,631     $ 9,348     $ 8,442     $ 29,882  
Vendor obligations     1,800       826       893       68       13  
Total   $ 52,103     $ 3,457     $ 10,241     $ 8,510     $ 29,895  

Off-Balance Sheet Arrangements

As of June 30, 2011, we did not have any significant off-balance sheet arrangements as defined by the regulations of the SEC.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

During the three months ended June 30, 2011, there were no recently issued accounting pronouncements that were applicable and adopted by the Company.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Currency risk

Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of our assets denominated in foreign currencies as well as our earnings due to the translation of our statement of financial condition and statement of operations from local currencies to U.S. dollars. We currently have limited exposure to currency risk from customer open positions as we utilize an agency model, simultaneously entering offsetting trades with both our customers and FX market makers. However, we do incur currency mismatch risk arising from customer accounts denominated in one currency being secured by cash deposits in a different currency. As exchange rates change, we could suffer a loss.

As at June 30, 2011, 13% of our net assets (assets less liabilities) were in British pounds, 6% in Euros, 9% in Japanese yen, and 23% in all other currencies other than the US dollar. For illustrative purposes, if each of these currencies were to adversely change by 10% with no intervening hedging activity by ourselves, this would result in a pre-tax loss of $6.9 million in the case of British pounds, $1.5 million for Euros and $2.5 million for Japanese yen and $3.3 million for Hong Kong dollars.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will impact our financial statements.

Our cash and customer cash (on which we do not pay interest) is held primarily in short-term demand deposits at banks and at our FX market makers. Interest rates earned on these deposits and investments affects our interest revenue. We currently derive a minimal amount of interest income on our cash balances as interest rates are near-zero. Based on cash and customer cash held at June 30, 2011, we estimate that a 50 basis point increase in interest rates would increase our annual pretax income by approximately $5.1 million.

We also earn a spread on overnight position financing (rollovers) and the interest differential our customers earn or pay depends on whether they are long a higher or lower yielding currency relative to the currency they borrowed. Currently interest rate differentials globally are at low levels and we earn a minimal amount of income from our spread on rollover.

Credit risk

Credit risk is the risk that a borrower or counterparty will fail to meet their obligations. We are exposed to credit risk from our retail and institutional customers as well as institutional counterparties.

All retail customers are required to deposit cash collateral in order to trade on our platforms. Our policy is that retail customers are not advanced credit in excess of the cash collateral in their account and our systems are designed so that each customer’s positions are revalued on a real-time basis to calculate the customer’s useable margin. Useable margin is the cash the customer holds in the account after adding or deducting real-time gains or losses, less the margin requirement. The retail customer’s positions are automatically closed once his or her useable margin falls to zero. Exposure to credit risk from customers is therefore minimal. While it is possible for a retail customer account to go negative in rare circumstances, for example, due to system failure, a final stop loss on the account is automatically triggered which will execute the closing of all positions. For the three months ended June 30, 2011 and 2010, we incurred $0.6 million and $0.6 million, respectively, in losses from customer accounts that had gone negative.

Institutional customers are permitted credit pursuant to limits set by the prime brokers that we use. As part of our arrangement with our prime brokers, they incur the credit risk regarding the trading of our institutional customers.

In addition, we are exposed to the following institutional counterparties: clearing and prime brokers as well as banks with respect to our own deposits and deposits of customer funds. We are exposed to credit risk in the event that such counterparties fail to fulfill their obligations. We manage the credit risk arising from institutional counterparties by setting exposure limits and monitoring exposure against such limits, carrying out periodic credit reviews, and spreading credit risk across a number of different institutions to diversify risk. As of June 30, 2011, our exposure to our three largest institutional counterparties, all major global banking institutions, was 49% of total assets and the single largest within the group was 17% of total assets.

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Market risk

Market risk is the risk of losses in on- and off-balance sheet positions arising from movements in market prices. As we operate predominantly on an agency model with the exception of certain trades of our CFD customers and until recently our Micro customers, we are not exposed to the market risk of a position moving up or down in value. Beginning in July 2010, we automatically hedge the positions of our Micro customers and intend as soon as practicable to automatically hedge the positions of our CFD customers. As of June 30, 2011, our net unhedged exposure to CFD customer positions was 3% of total assets. A 1% change in the value of our unhedged CFD positions as of June 30, 2011 would result in a $0.3 million decrease in pre-tax income.

Liquidity risk

In normal conditions, our business of providing online FX trading and related services is self financing as we generate sufficient cash flows to pay our expenses as they become due. As a result, we generally do not face the risk that we will be unable to raise cash quickly enough to meet our payment obligations as they arise. Our cash flows, however, are influenced by customer trading volume and the income we derive on that volume. These factors are directly impacted by domestic and international market and economic conditions that are beyond our control. In an effort to manage this risk, we maintain a substantial pool of liquidity. As of June 30, 2011, cash and cash equivalents, excluding cash and cash equivalents held for customers, were 14% of total assets.

Operational risk

Our operations are subject to various risks resulting from technological interruptions, failures, or capacity constraints in addition to risks involving human error or misconduct. Regarding technological risks, we are heavily dependent on the capacity and reliability of computer and communications systems supporting our operations. We have established a program to monitor our computer systems, platforms and related technologies and to address issues that arise promptly. We have also established disaster recovery facilities in strategic locations to ensure that we can continue to operate with limited interruptions in the event that our primary systems are damaged. As with our technological systems, we have established policies and procedures designed to monitor and prevent both human errors, such as clerical mistakes and incorrectly placed trades, as well as human misconduct, such as unauthorized trading, fraud, and negligence. In addition, we seek to mitigate the impact of any operational issues by maintaining insurance coverage for various contingencies.

Regulatory capital risk

Various domestic and foreign government bodies and self-regulatory organizations responsible for overseeing our business activities require that we maintain specified minimum levels of regulatory capital in our operating subsidiaries. If not properly monitored or adjusted, our regulatory capital levels could fall below the required minimum amounts set by our regulators, which could expose us to various sanctions ranging from fines and censure to the imposition of partial or complete restrictions on our ability to conduct business. To mitigate this risk, we continuously evaluate the levels of regulatory capital at each of our operating subsidiaries and adjust the amounts of regulatory capital in each operating subsidiary as necessary to ensure compliance with all regulatory capital requirements. These may increase or decrease as required by regulatory authorities from time to time. We also maintain excess regulatory capital to provide liquidity during periods of unusual or unforeseen market volatility, and we intend to continue to follow this policy. In addition, we monitor regulatory developments regarding capital requirements to be prepared for increases in the required minimum levels of regulatory capital that may occur from time to time in the future. As of June 30, 2011, we had $62.6 million in regulatory capital requirements at our regulated subsidiaries and $211.1 million of capital on a consolidated basis.

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Regulatory risk

We operate in a highly regulated industry and are subject to the risk of sanctions from U.S., federal and state, and international authorities if we fail to comply adequately with regulatory requirements. Failure to comply with applicable regulations could result in financial and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or limit our ability to pursue certain business opportunities. Federal and state regulations significantly limit the types of activities in which we may engage. U.S. and international legislative and regulatory authorities change these regulations from time to time. See “Item 1A. Risk Factors.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2011, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management has not identified any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

This Quarterly Report on Form 10-Q does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. At the end of the fiscal year 2011, Section 404 of the Sarbanes-Oxley Act will require our management to provide an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm will be required to report on the effectiveness of internal control over financial reporting. We are in the process of performing the system and process documentation, and evaluation and testing required for management to make this assessment and for the Company’s independent registered public accounting firm to provide their attestation report. We have not completed this process or the assessment, and this process will require significant amounts of management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

In the ordinary course of business, we may from time to time be involved in litigation and claims incidental to the conduct of our business, including intellectual property claims. In addition, our business is also subject to extensive regulation, which may result in regulatory proceedings against us. We have been named in various arbitrations and civil litigation cases brought by customers seeking damages for trading losses. Management has investigated these matters and believes that such cases are without merit and is defending them vigorously. However, the arbitrations and litigations are presently in various stages of the judicial process and no judgment can be made regarding the ultimate outcome of the arbitrators’ and/or court’s decisions.

In June 2010, Forex Capital Markets (US) was contacted by the NFA requesting information regarding trade execution activities. In November 2010, US was additionally contacted by the CFTC for similar information. In July 2011, US reached a settlement with the NFA in which it neither admitted nor denied having committed any rule violation and whereby US agreed to make a good faith effort to credit accounts of certain of its customers. US also agreed to pay a fine to the NFA. US is also engaged in ongoing discussions with the CFTC with regard to the above inquiry. In the second quarter of 2011, the Company established a reserve of approximately $16.0 million relating to these matters and is included in general and administrative in the condensed consolidated statement of operations and comprehensive income.

In June 2011, US entered into an agreement with certain founding members of Holdings, whereby these members would reimburse US for the amounts related to the NFA and CFTC matters, up to $16.0 million. Consequently, there was no impact to the Corporation’s net income for the three and six months ended June 30, 2011, as the expense was allocated to such members for such expenses as permitted under the terms of the LLC Agreement. In July 2011, $16.0 million of additional capital was provided by the respective founding members (see Notes 2, 13 and 22 to our Unaudited Condensed Consolidated Financial Statements).

In September 2010, Forex Capital Markets Limited (UK) became aware of changes in U.S. law that might preclude it from continuing to serve as a counterparty in retail FX transactions with U.S. persons absent registration as a retail foreign exchange dealer, as set forth under Part 5 of the CFTC Regulations, effective as of October 18, 2010. During the three months ended June 30, 2011, the Company established a reserve of $0.1million relating to this matter and is included in general and administrative in the condensed consolidated statement of operations and comprehensive income. In August 2011, UK reached a settlement with the CFTC regarding the 11-day period in 2010 in which UK was not in compliance with the CFTC’s registration requirement. Under the terms of the settlement, UK has agreed to pay a fine of approximately $0.1 million to the CFTC to resolve this matter.

On February 8, 2011, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York by a single former customer against Forex Capital Markets LLC. The complaint asserts claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §1961 et seq ., as well as the New York General Business Law. The complaint seeks an unspecified amount of damages, trebled, and alleges false and deceptive trade practices, fraudulent and unfair trade execution and account handling practices. A motion to compel arbitration was filed by Forex Capital Markets LLC during April 2011 and a decision is pending.

On March 3, 2011, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York against FXCM Inc., as well as certain of our officers and directors and three underwriters in our IPO. The complaint asserts claims under Sections 11 and 15 of the Securities Act, alleges false or misleading statements in the IPO prospectus regarding the Company's business model and trading platforms, and sought an unspecified amount of damages on behalf of persons who purchased our Class A common stock in the IPO. On July 1, 2011, a Stipulation of Dismissal with Prejudice (the “Dismissal”) was filed with the United States District Court for the Southern District of New York. As a result of the Dismissal, all claims asserted by Plaintiff against Defendants were dismissed with prejudice.

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As discussed above, during three months ended June 30, 2011, the Company established reserves of approximately $16.1 million. As to the other matters described above, the Company cannot predict the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, the Company, based on current knowledge and after consultation with counsel, does not expect that the resolution of such other matters will have a material effect on the Company.

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2010, or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.

The risks described in our Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission are not the only risks facing us. Additional risks and uncertainties, not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Shares of Class A common stock repurchased by the Company during the quarter ended June 30, 2011, were as follows:

Issuer Repurchases of Equity Securities

       
Period   Total
Number of
Shares
Purchased
  Average
Price Paid per Share
  Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
  Maximum
Dollar Value
that May Yet
Be Purchased
Under the
Plans or
Programs
Month 1: April 1, 2011 to April 30, 2011         $           $ 30,000,000  
Month 2: May 1, 2011 to May 31, 2011     183,567       8.9823       183,567       28,351,146  
Month 3: June 1, 2011 to June 30, 2011     183,109       9.2586       183,109       26,655,813  
Total     366,676     $ 9.1205       366,676       26,655,813  

On May 17, 2011, the Company announced that its board of directors authorized the repurchased of up to $30,000,000 of its Class A common stock. The Company is not obligated to purchase any shares under the repurchase program and the repurchase program does not have an expiration date. All of the above repurchases were part of this program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

On June 27, 2011, Forex Capital Markets LLC (US) entered into a Funding Agreement with Dror (Drew) Niv, David Sakhai, William Ahdout, Kenneth Grossman, Eduard Yusopov and another non-managing member of FXCM Holdings, LLC whereby such persons agreed to make capital contributions up to $16.0 million in the aggregate to fund the anticipated settlement amounts with the National Futures Association and the Commodity Futures Trading Commission described in further detail in the “Litigation” section in Note 18 to our Unaudited Condensed Consolidated Financial Statements. The Funding Agreement is filed as exhibit 10.1 to this Quarterly Report and is incorporated herein by reference.

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Item 6. Exhibits

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 
Exhibit
Number
  Description of Exhibit
10.1*    Funding Agreement, dated June 27, 2011
31.1*    Certification required by Rule 13a-14(a).
31.2*    Certification required by Rule 13a-14(a).
32.1**   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.NS**    XBRL Instance Document
101.SCH**   XBRL Taxonomy Extension Schema Document
101.CAL**   XBRL Taxonomy Extension Calculation Document
101.LAB**   XBRL Taxonomy Extension Labels Document
101.PRE**   XBRL Taxonomy Extension Presentation Document
101.DEF**   XBRL Taxonomy Extension Definition Document

* Filed herewith.
** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

 
  FXCM INC.
Date: August 15, 2011  

By

/s/ Dror (Drew) Niv
Dror (Drew) Niv
Chief Executive Officer
(Principal Executive Officer)

Date: August 15, 2011  

By

/s/ Robert Lande
Robert Lande
Chief Financial Officer
(Principal Accounting Officer)

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